Thursday, July 2, 2020

Asia Times: Stocks in the US gain on Wednesday thanks to better-than-expected manufacturing data and hopes for a potential vaccine

Tags
  • Dollar
  • Gold
  • Yen
  • Euro
  • Stocks
  • Oil

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Market RecapStocks in the US gain on Wednesday thanks to better-than-expected manufacturing data and hopes for a potential vaccine

The S&P500 advanced for a third day as positive vaccine news helped extend optimism in financial markets. Positive data from an early human trial for an experimental vaccine that's being co-developed by Pfizer and BioNTech likely helped remind investors that a cure for the novel coronavirus is still making progress at a fast pace with the multitude of companies and countries investing resources into it. The news resulted in Pfizer leading gains in the DJIA, rising 3.18% on Wednesday. The US-listed shares of BioNTech surged as much as 14.90% on market open, but regressed later in the day reversing all of its gains to end Wednesday's trading session 3.39% lower. Economic data released on Wednesday mostly skewed the outlook for the US economy towards a more positive one after ISM's manufacturing PMI report for June spiked to 52.6, surpassing economists' forecasts of 49.8. ADP's private employment change report fell below expectations to only add 2.369 million jobs in June, but the report was likely still welcomed as a positive signal after showing that job growth in the US private sector for June was driven mainly by small businesses and in particular the leisure & hospitality industry.

In sector news, energy and financial stocks weighed on both the S&P500 and the DJIA. The US Energy Information Administration's (EIA) weekly crude oil report likely put downward pressure on the industry's outlook after demand for gasoline implicitly fell for the week ended June 26th. Major US bank stocks trading relatively muted on Wednesday likely put some pressure on the S&P500 index, as the Fed's decision to suspend dividend payouts and share buybacks continue to weigh on sentiment for banks. The real estate, utilities and communication services sectors led gains in the S&P500. Boeing's stock continued to fall for the second day, losing 1.63% on Wednesday to be among the top 10 laggards in the DJIA. FedEx Corp's stock ended Wednesday's trading session 11.72% higher despite losing some of its earlier gains in the day after reporting better-than-expected quarterly profit and revenue as the Covid-19 pandemic helped fuel demand for home deliveries.

Indexes Daily Change (%) Net Change Closing Price
Dow -0.30% -77.91 25,734.97
S&P500 +0.50% +15.57 3,115.86
Nasdaq +0.95% +95.86 10,154.63
*Source: Bloomberg

In the foreign exchange market, the dollar fell against most G10 currencies with the exception of the Canadian dollar. The better-than-expected ISM manufacturing PMI report for June likely helped ease demand for the greenback's safe haven properties, as did positive news on a potential vaccine for the novel coronavirus by Pfizer and BioNTech. The FOMC's meeting minutes for its monetary policy meeting earlier in June put some slight upward pressure on the dollar however, as the meeting minutes indicated that Fed policymakers were not willing to commit to the use of yield curve control tools while signalling that forward guidance on future policy will be the focus of future monetary policy meetings.

The Norwegian krone performed the best against the dollar among G10 currencies, likely helped in part by an increase in Brent crude oil prices and as volatility for the NOK/USD currency pair increases as demand for the dollar in a low-interest rate environment in the US becomes less attractive. While the Norwegian krone remains the worst performing G10 currency against the dollar year-to-date, the easing recovery in oil markets may be a signal that a recovery for the currency might be limited.

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Safe haven demand was mixed on Wednesday, highlighting that risk hedging is still present in financial markets despite the growing optimism. Gold fell for the first time after four straight days of gains, possibly as a result of profit taking. The Japanese yen gained against both the dollar and the euro, likely as the currency remains an attractive hedge against the greenback and euro as new Covid-19 infections continue to climb in the US, While European Central Bank President Christine Lagarde renews her warnings of an uncertain economic recovery. EU members showing little progress on the bloc's budget front likely helped the yen rise against the euro as well. US Treasuries fell across the board, pushing benchmark 10-year yields 2.0bps higher to 0.68%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.61% -10.87 1,770.09
Silver -1.07% -0.20 18.01
USD/JPY -0.43% -0.46 107.47
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +1.2bps 0.16%
10-Year +2.0bps 0.68%
30-Year +1.3bps 1.42%
*Source: Bloomberg

Oil futures advanced on Wednesday following the positive reports on the experimental vaccine from Pfizer and BioNTech. The EIA's crude oil report for the week ended June 26th showing US crude oil stockpiles declined by 7.2 million barrels likely helped support the gain in oil prices as well. However, declining implied fuel demand curbed some of the gains for oil as fear that the increasing pace of new Covid-19 cases in the US weighing on energy demand starts to materialise. With multiple states in the US announcing a pause to their reopening plans, the outlook for oil demand looks likely to tilted to the downside and weigh on the recovery in energy demand in the US. This is due to downward pressure on implied demand for gasoline in addition to an expected easing in demand for motor fuel after experiencing a spike thanks to lockdown restrictions easing. The pause on reopening will likely also put additional weight on demand for diesel, which is already experiencing a slow recovery despite easing of lockdown restrictions. The outlook for oil as a result is likely to remain subdued, and mostly trade within the current range with little upside in the short-term, while a slow recovery in the long-term should still be expected.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +1.84% +0.76 42.03
WTI +1.40% +0.55 39.82
*Source: Bloomberg

In Asia, stocks were trading higher on Thursday morning and looks likely to continue to track gains in the US. The Nikkei may face downward pressure from a stronger yen and weaker-than-expected manufacturing data for Q2. The KOSPI and ASX200 were trading higher in the first hour of Thursday's trading session. Futures tracking major indices in the US were trading slightly lower but close to flat on Thursday morning as of 8.49am (GMT +8), signalling that optimism may ease in US equities markets ahead of the Independence Day holiday on Friday in the US. The US Bureau of Labor Statistics’ (BLS) employment report may provide stocks with some upside and continue to be a driver for optimism in financial markets and easing layoffs and declining benefit claims signal that June's dataset may likely show more jobs being added in the US economy. US major indices still look set to end the week higher, despite accelerating new Covid-19 cases in the US.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.06% -13.68 22,108.05 8:39:00 AM
KOSPI +0.64% +13.48 2,120.18 8:59:00 AM
ASX200 +0.46% +27.20 5,961.60 8:58:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.05% -12.00 25,563.00 8:49:01 AM
US Futures -0.12% -3.75 3,099.25 8:49:01 AM
Nasdaq Futures -0.04% -4.00 10,264.75 8:49:01 AM
*Source: Bloomberg

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

  • Eurozone May Unemployment Rate (5pm)
  • US June Change in NonFarm Payrolls (8.30pm)
  • US June 26th Initial Jobless Claims (8.30pm)
  • US June 19th Continuing Jobless Claims (8.30pm)
  • US June Unemployment Rate (8.30pm)
  • US May Factory Orders (10pm)