Monday, June 29, 2020

Asia Times: Worries on renewed lockdown restrictions materialise, sending stock prices plummeting

Tags
  • Dollar
  • Gold
  • Euro
  • Stocks
  • Oil

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Market RecapWorries on renewed lockdown restrictions materialise, sending stock prices plummeting

Stocks prices in the US dived on Friday as investors start to price in a possible cycle of easing and renewing lockdown restrictions in multiple states. States such as Texas, Florida, Arizona continued to report a surge in Covid-19 infections and is likely to continue on the same trajectory for an extended period of time as testing ramps up in those states. The shift back into risk averse positions was apparent in the stock market, with the utilities and health care sectors leading gains among the S&P500 sectors. Banking industry stocks were some of the worst performers in the S&P500 after the Fed announced late last Thursday that it would freeze dividends and share buybacks until at least the fourth quarter of the year. Shares of JP Morgan, Wells Fargo, Bank of America, Citibank, Goldman Sachs each fell upwards of 5% on Friday. Global cases of Covid-19 surged past 10 million over the weekend while globally confirmed deaths rose above 500,000.

In company news, Facebook's shares plunged more than 8% on Friday as a boycott campaign on Facebook ads to increase pressure on the social media giant regarding issues surrounding hate speech seemingly gained more traction towards the end of the week. Major companies Unilever and Coca-Cola joined a growing list of companies boycotting advertising oon social media on Friday, with both companies announcing that it would be pausing all advertising on the social media platform. Coca-Cola clarified later that day that while it was not joining the official boycott, it will be pausing all of its paid advertising on all social media platforms globally for at least 30-days. Unilever announced that it would half advertising in the US on Facebook, Instagram and Twitter at least through December 31st this year.

Indexes Daily Change (%) Net Change Closing Price
Dow -2.84% -730.05 25,015.55
S&P500 -2.42% -74.71 3,009.05
Nasdaq -2.59% -259.78 9,757.22
*Source: Bloomberg

Global equities ended the week lower as a result of risk aversion, with risk appetite fading among investors once again. US major indices suffered the most among other major indices around the globe, with the DJIA losing more than 3.31% over the week. Stocks in the EU and UK tracked losses in the US as well, while Asia has yet to catch up, signalling that trading in Asia on Monday is likely to be relatively volatile with the outlook for stock prices in Asia tilted towards the downside.

Indexes Weekly Change (%) Net Change Closing Price
Dow -3.31% -855.91 25,015.55
S&P500 -2.86% -88.69 3,009.05
Nasdaq -1.90% -188.90 9,757.22
FTSE100 -2.12% -133.30 6,159.30
Dax -1.96% -241.37 12,089.39
Stoxx -1.99% -64.93 3,204.17
Nikkei +0.15% +33.29 22,512.08
CSI300 +0.98% +40.28 4,138.99
KOSPI -0.31% -6.67 2,134.65
ASX200 -0.65% -38.50 5,904.08
HSI -0.38% -93.90 24,549.99
STI -1.15% -30.32 2,604.51
*Source: Bloomberg

In the foreign exchange market, the dollar mostly gained against other major currencies, although the euro and the Swiss franc managed to edge out gains on Friday. Commodity-linked currencies were among the worse-performers on Friday as the shift towards lower-risk positions was also present in the forex market.

Separately, gains in the dollar was likely curbed by the weak consumer spending report for May. Personal income fell less-than-expected for May at -4.2%, although it is more likely that it was attributed to the remaining fiscal stimulus payouts from the US government. The dataset however, is still inflated by the US$600 weekly top up to unemployment benefits, which will cease at the end of July. Personal spending rose less-than-expected, only growing 8.2% in May, with consumer spending in services categories rebounding much less compared to goods spending. Savings rate fell from a record high of 32.2% to 23.2%, still much higher than that of the previous high in 1975 of 17.3%. The high levels of savings and lower-than-expected consumer spending suggests that consumer spending will still remain impacted for an extended period of time, due to both the high levels of uncertainty regarding the US' economic outlook as well as lockdown restrictions being lifted only in phases.

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Demand for safe haven assets rose on Friday. Gold rose past 1,770's level, while the Japanese yen traded relatively flat against both the dollar and euro. US Treasuries surged across the board, pushing benchmark 10-year yields down by 4.4bps to 0.64%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.43% +7.50 1,771.29
Silver +0.01% +0.00 17.81
USD/JPY +0.03% +0.03 107.22
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -2.0bps 0.17%
10-Year -4.4bps 0.64%
30-Year -6.4bps 1.37%
*Source: Bloomberg

Oil futures fell on Friday as well, with the outlook for energy tilting towards the downside as a result of increasing Covid-19 cases in the US. The increasing likelihood for renewals of Covid-19 lockdowns in the US is starting to impact crude oil's outlook as well, with traders starting to price in the possibility of an extended cycle of easing and renewing lockdown restrictions in the US. The outlook for US oil producers is likely to face more downside pressure over the week, with Chesapeake Energy Corp filing for bankruptcy on Sunday. Bloomberg reported that Exxon Mobil Corp is weighing layoffs in the US to cut costs, although the report only cited people familiar with the matter and not official comments. The outlook for crude oil markets is likely increasingly more tilted to the downside as a result, signalling that the strong recovery in May has likely led to over-optimism in the energy market.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -0.07% -0.03 41.02
WTI -0.59% -0.23 38.49
*Source: Bloomberg

In Asia, stocks look likely to start the week in the red as pessimism starts to spill-over from the US as investors in the Asian regions re-enter in to markets. The Nikkei, KOSPI and ASX200 were each trading lower in the first hour of Monday's trading session. Futures tracking major indices in the US were trading slightly lower as well, signalling that the negative sentiment in financial markets is likely to continue into trading when US stock markets reopen later today as well.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -1.61% -356.39 22,155.69 8:53:55 AM
KOSPI -0.80% -16.97 2,117.68 9:13:50 AM
ASX200 -1.50% -87.38 5,816.70 9:13:44 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.04% +9.00 24,956.00 9:03:55 AM
US Futures +0.01% +0.25 3,007.25 9:03:56 AM
Nasdaq Futures -0.18% -17.00 9,848.50 9:03:54 AM
*Source: Bloomberg

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

  • Germany June Inflation Rate (Harmonised CPI/CPI) (P) (8pm)
  • US June Manufacturing Activity (Dallas Fed) (10.30pm)