Wednesday, June 24, 2020

Asia Times: Hopes for additional stimulus in the US continue to help stock markets advance

Tags
  • China
  • Gold
  • Stocks
  • Oil
  • Reserve Bank of New Zealand

06242020a

Market Recap: Hopes for additional stimulus in the US continue to help stock markets advance

Stocks on Wall Street fared decently well on Tuesday, starting the trading day strong after US President Donald Trump dismissed a Fox News report quoting White House trade advisor Peter Navarro saying that the phase one agreement between the US and China was over. Fox News reported that on Tuesday that Navarro responded to a question regarding the US-China trade agreement with "it's over", suggesting that the US was backing out of the phase one agreement. US President Donald Trump later dismissed the claims, stating that the trade deal between the US and China was still intact. Navarro also clarified later that his words were taken out of context.

Stock prices were also lifted on the prospects for another round of stimulus measures from the US government after White House officials commented on the matter. US Treasury Secretary Steven Mnuchin said that the Trump administration was discussing a new stimulus package that would focus on reducing unemployment and that it could be passed in July. Mnuchin’s statements likely helped increased speculation for another round of stimulus in the US, sending stock prices in less defensive sectors higher during Tuesday’s trading session.

Equities pared back gains late into Tuesday's trading session however as caution on increasing Covid-19 infections was renewed by a report by the New York Times that the EU was considering to block people from the US from entering the bloc as infections in the US continues to climb. In the US, California reported its biggest daily jump of Covid-19 infections, Florida's infection rate climbed above 10% and Houston's ICU is reportedly reaching maximum capacity. In sector news, consumer discretionary and technology stocks rose the most while more defensive sectors such as utilities, real estate and consumer staples lagged the most among major S&P500 sectors. Sector performances suggest that while there was increased risk appetite among investors as compared to the period in March and April, cautious optimism is being displayed by investors with investments shifting to sectors with higher growth potential while still being somewhat resilient to a reintroduction of lockdown measures. Apple's shares drove markets on Tuesday, reaching another new high for the second day in a row after a number of analysts upgraded their target price for the company’s stock following its announcement to use its self-designed processors in its Mac line of computers earlier this week.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.50% +131.14 26,156.10
S&P500 +0.43% +13.43 3,131.29
Nasdaq +0.74% +74.90 10,131.37
*Source: Bloomberg

The dollar fell against most major indices as traders position their portfolios to take advantage of a possible stimulus package from the US government in the near future. Better-than-expected preliminary PMI data in Germany, the Eurozone and the UK across both manufacturing and services sectors likely helped drive risk sentiment in the foreign exchange market as well. New home sales in the US for May rising above both that of April's figure and economists' expectations likely also helped drive optimism for a global economic recovery and consequently risk-off sentiment seen among major currencies on Tuesday.

The Canadian dollar was the exception among major currencies, falling against the dollar after the New York Times reported that the US was considering imposing tariffs on Canadian aluminum over concerns of a surge in exports to the US. The report comes just before the revised North American trade deal set to come into effect on July 1st, which will exempt Canada and Mexico from tariffs that the US had placed on steel and aluminum imports. The deal does stipulate that the US government can impose a levy of 25% for certain steel products or 10% on certain aluminum products if there was a surge in imports of those products and if the countries fail to resolve the issue. The report likely sparked concerns that relations between the two countries may be strained amidst the Covid-19 pandemic which will likely put more downward pressure on both economies, consequently weighing on the Canadian dollar on Tuesday as a result.

The New Zealand dollar is likely to trade with higher volatility this morning as speculation that the central bank will keep rates unchanged and revise its outlook for the New Zealand economy upwards rises. As per yesterday's morning brief and analysis on the Reserve Bank of New Zealand's (RBNZ) monetary policy decision today, the likelihood of changes to the RBNZ's monetary policy tools is low since the economy is likely more skewed above the central bank’s base case scenario since its last meeting. It's main trading partners has also been successful in lifting their respective lockdowns to a certain extent which should reduce some of the downside risk for the New Zealand economy. We do expect the central bank to remain dovish in their statement however, to attempt to reduce the potential upside of the New Zealand dollar. This would mean that the New Zealand dollar may have some room to strengthen against the dollar, although it will likely be limited.

06242020a

Safe haven assets mostly gained on Tuesday but it was unlikely only due to risk aversion. Gold inched higher for the second day in a row, likely as risk hedging increased as well as being the preferred asset for liquidity as opposed to cash. The Japanese yen rose against the dollar but fell slightly against the euro, signalling that demand for lower-risk assets in the foreign currencies market wasn't strong. US Treasuries were mixed, with short-term treasuries gaining while longer-termed ones fell. Benchmark 10-year yields were close to flat, inching only 0.3bps higher to stay at about 0.71%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.80% +13.98 1,768.41
Silver +1.31% +0.23 17.94
USD/JPY -0.36% -0.39 106.52
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.6bps 0.19%
10-Year +0.3bps 0.71%
30-Year +2.7bps 1.49%
*Source: Bloomberg

Oil futures fell on Tuesday after the American Petroleum Institute reported another increase in US crude oil stockpiles last week. The report signalled that supply in the US may continue to rise more-than-expected as demand for oil continues to face more downward pressure. Traders will likely be waiting the official report on US oil stockpiles from the Energy Information Administration (EIA) that will be released later today at 10.30pm (GMT +8) for more details on energy supply and demand in the US last week. Reports that the EU was considering to block entry for Americans to the bloc is likely to weigh on crude oil prices today as well, as it becomes clearer that demand for air travel will remain curbed for an extended period of time amidst the Covid-19 crisis.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -1.04% -0.45 42.63
WTI -0.88% -0.36 40.37
*Source: Bloomberg

Stocks in Asia were trading mostly higher, as investors continue to shift their positions away from lower-risk assets. Positive news on the conflict regarding the China-India border dispute likely helped lift equity prices as well, after the two countries agreed to deescalate tensions on their disputed border. The Nikkei, KOSPI and ASX200 were all trading higher in the first hour of the Wednesday's trading session. Futures tracking major indices in the US were also in the green as of 8.33am (GMT +8), signalling that the US stock market may be able to extend gains for the third day in a row when it reopens on Wednesday even despite increasing Covid-19 infections in the US.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +0.37% +83.48 22,632.53 8:23:50 AM
KOSPI +1.30% +28.14 2,159.38 8:43:50 AM
ASX200 +0.55% +32.89 5,987.30 8:43:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.17% +44.00 26,064.00 8:33:53 AM
US Futures +0.13% +4.00 3,122.50 8:33:53 AM
Nasdaq Futures +0.18% +18.50 10,214.50 8:33:53 AM
*Source: Bloomberg

Economic releases for the day ahead include (all timing in GMT +8):

  • RBNZ Monetary Policy Decision/Statement (10am)
  • RBNZ Governor Adrian Orr Speech on Monetary Policy Decision (11am)
  • Germany June Current Assessment/Expectations Survey (IFO) (4pm)
  • US June 19th Mortgage Applications (MBA) (7pm)
  • US Apr Housing Price Index (FHFA) (9pm)