Tuesday, June 30, 2020

Asia Times: Boeing’s stock lead gains in the US stock market following regulatory approval for 737 Max test flights

Tags
  • China
  • Dollar
  • Yen
  • Euro
  • Stocks
  • Oil

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Market Recap:Boeing’s stock lead gains in the US stock market following regulatory approval for 737 Max test flights

US equities advanced on Monday as financial market participants start to become more hopeful for more stimulus from the Fed and US government. Strong US pending home sales and better-than-expected manufacturing activity from the Dallas Fed likely also contributed to a spike in stock prices. Pending home sales surged 44.3% MoM, higher than any of the 21 economists polled by Bloomberg. The Dallas Fed's manufacturing activity index for June was -6.1, a smaller contraction than the median estimate by economists of -21.4. The better-than-expected data in the US likely helped fuel optimism for both an economic recovery in the US and more fiscal and monetary stimulus measures since both datasets were still much lower compared to the same period in 2019 despite recovering MoM.

Industrial stocks led gains in the US, mainly driven by the airline industry. Major airlines in the US each advanced more than 6% on Monday, led by Southwest Airlines (+9.64%) after an analyst from Goldman Sachs upgraded her rating for the airline from sell to a buy, expecting the airline's domestic focused network and strong balance sheet to put it ahead of its peers for a quicker recovery. Boeing was the highlight on Monday, after its stock surged 14.40% following regulatory approval for test flights for its 737 Max to begin on Monday. The news likely drove optimism among investors for Boeing's 737 Max woes to be close to coming to an end after a 15-month long process. But the aircraft maker's stock fell 1.49% in after-hours trading thanks to news that Norwegian Airlines is cancelling its purchase agreement for all 97 of its remaining jets. Out of the 97 orders, 92 were 737 Max planes while five were 787 Dreamliner aircrafts. In its statement on Monday, the airline said that talks with Boeing have not led to an agreement with a reasonable compensation, prompting it to file a legal claim for pre-delivery payments for the planes in addition to compensation for losses resulting from the grounding of the 737 Max aircraft. It looks likely that Boeing's outlook will still face a large amount of downward pressure as a result of the issues surrounding the grounding of its 737 Max aircrafts as well as low demand for travel resulting from the Covid-10 pandemic.

Indexes Daily Change (%) Net Change Closing Price
Dow +2.32% +580.25 25,595.80
S&P500 +1.47% +44.19 3,053.24
Nasdaq +1.20% +116.93 9,874.15
*Source: Bloomberg

In the foreign exchange market, G10 currencies were mixed against the dollar as risk appetite grew among financial market participants. The Norwegian krone and Canadian dollar led gains, likely driven by gains in crude oil prices. The safer Japanese yen and Swiss franc led losses on Monday as investors shifted away from risk aversion. The Dollar Index advanced, mostly due to the decline in sterling and the Japanese yen, signalling that confidence in the US economy may be growing once again following the stronger-than-expected manufacturing index activity for June and pending home sales for May.

In Japan, industrial production and unemployment May were both slightly worse-than-expected and may put pressure on the Japanese yen early on Tuesday. Industrial production in May fell 8.4% MoM and 25.9% YoY while the unemployment rate rose by 0.1% to 2.9%. The dollar may be more volatile today, as stock prices may start to normalise following the surge on Monday and as the US Conference Board's consumer sentiment report for June gets released at 10pm (GMT +8). Consumer sentiment might fall lower than economists' estimates however, as a result of increasing Covid-19 cases in the US which may put some pressure on consumers’ expectations for the outlook for the US economy.

The greenback may also face some upward pressure on Tuesday as a result of increased geopolitical risk after the US revoked Hong Kong’s special trading partner status, citing an increased risk that sensitive American technology will be able to more easily reach China. The decision comes ahead of China’s decision to impose a national security legislation on Hong Kong later today and will result in the suspension of rules that gives preferential treatment to Hong Kong, which includes the availability of export-license exceptions. Investors will likely take the decision as a signal for an escalation in US-China tensions, possibly putting some upside on the dollar.

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Safe haven assets were mixed on Monday, as investors weigh between hedges and riskier positions. Gold inched higher while the Japanese yen fell against both the greenback and the euro. US Treasuries mostly rose, although 30-year treasuries fell. Benchmark 10-year yields were 1.8bps lower at 0.62% as a result.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.09% +1.53 1,772.82
Silver +0.30% +0.05 17.86
USD/JPY +0.34% +0.36 107.58
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -1.8bps 0.15%
10-Year -1.8bps 0.62%
30-Year +0.3bps 1.37%
*Source: Bloomberg

In oil markets, strong economic data helped drive crude oil prices to largely ignore Covid-19 related fears. Brent rose more than 1% while WTI advanced more than 3%, signalling that market participants may have been more optimistic for a recovery in domestic demand for energy in the US. A Bloomberg report suggesting that China's state-owned oil refining plants are in discussions to form a coalition to purchase crude oil as a group to increase bargaining power and reduce bidding wars. While the report's source was people familiar with the plan, it likely still helped drive investors sentiment for the stabilisation of energy demand in China, which in turn helped drive sentiment for a recovery in demand for energy.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +1.68% +0.69 41.71
WTI +3.14% +1.21 39.70
*Source: Bloomberg

Stocks in Asia looks on track for gains on Tuesday morning, likely impacted by the growing risk appetite seen in the US stock market on Monday. The Nikkei, KOSPI and ASX200 were each trading more than 1% higher in the first hour of the trading session. Stocks in Hong Kong may face some downward pressure following the news that the US has decided to revoke Hong Kong’s special trading status. Futures tracking major indices in the US were trading higher as well, suggesting that optimism in Asia may continue into Tuesday's trading session in the US as well.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +1.57% +350.24 22,345.28 8:35:30 AM
KOSPI +1.18% +25.01 2,118.49 8:55:30 AM
ASX200 +1.66% +98.07 5,913.10 8:55:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.16% +40.00 25,537.00 8:45:32 AM
US Futures +0.16% +4.75 3,052.50 8:45:32 AM
Nasdaq Futures +0.25% +24.50 9,998.25 8:45:32 AM
*Source: Bloomberg

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

  • UK Q1 GDP (F) (2pm)
  • Eurozone Inflation Rate (CPI) (P) (5pm)
  • Canada Apr GDP (8.30pm)
  • US June Consumer Confidence (Conf. Board) (10pm)