Tuesday, July 7, 2020

Asia Times: US equities surge as upbeat services data in the US signal improvements in consumer spending

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  • Dollar
  • Gold
  • Yen
  • Stocks
  • Oil

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Market Recap: US equities surge as upbeat services data in the US signal improvements in consumer spending

Wall Street stocks brushed off the accelerating count of new Covid-19 cases in the US to close Monday's trading session higher thanks to upbeat economic data from both the US and China. The jump in Caixin's services PMI report for China for the month of June (A: 58.4, E: 53.2) released last Friday while the US remained closed for the Independence Day holiday likely helped boost confidence for an economic rebound in China. Chinese stocks listed in the US likely surged on Monday as a result, with notable gains from Alibaba, closing the day 7.33% higher. On Monday, ISM's services PMI for June for the US also largely surprised investors, fueling optimism in financial markets. ISM's services PMI rose to 57.1 from 45.4, beating even the highest of the 58 estimates by Bloomberg-polled economists. Stocks surged as a result, pushing both the DJIA and the S&P500 up more than 1% on Monday.

In sector news, the consumer discretionary, communication services and financials sectors led gains among S&P500 sectors as investors grew more bullish for an economic recovery in the services sector in the US. Utilities, real estate and energy lagged the most. Goldman was the top performer in the Dow, along with JPMorgan at number six and American Express at eight, likely thanks to the better-than-expected services PMI data which consequently drove optimism for increased consumer spending in the US. Notable company-level news belonged to Amazon, whose stock exceeded the 3,000 mark for the first time. The rise in Amazon and other cloud-computing related stocks signals that financial market participants are still expecting the industry to continue to outperform other stocks over the medium-term as adoption rates for remote working environment related technologies rise at an accelerated rate amid the Covid-19 pandemic. Google, Facebook and Twitter announced that it would put a pause on processing requests from the Hong Kong government for user data, following concerns of the newly imposed national security legislation in Hong Kong. Gains in those companies may have been slightly held back by the news as a result.

Indexes Daily Change (%) Net Change Closing Price
Dow +1.78% +459.67 26,287.03
S&P500 +1.59% +49.71 3,179.72
Nasdaq +2.21% +226.02 10,433.65
*Source: Bloomberg

The dollar dipped on Monday as optimism for an economic recovery was further fueled by the better-than-expected services sector data. The Norwegian krone led gains against the dollar among G10 currencies, possibly thanks to Norway's fiscal mechanism in which it repatriates funds from abroad as opposed to issuing debt, allowing it to benefit from both reduced risk aversion and a cheaper dollar. The Canadian dollar was the worst performer against the dollar, possibly thanks to news that Canadian Prime Minister Justin Trudeau turned down a White House invitation to celebrate the new free trade agreement between the US, Canada and Mexico. Traders may still be cautious on US-Canada relations as a result, especially after earlier reports that the US is considering tariffs on steel and aluminum imports from Canada.

The Australian dollar is likely to trade little changed ahead of today's Reserve Bank of Australia's (RBA) monetary policy meeting. The RBA looks unlikely to make any changes to monetary policy at its meeting today, as the country continues to recover from the impact of Covid-19 induced lockdowns earlier this year. The reopening of its domestic economy and the reopening of its major trading partners' economies have helped support the outlook of its economic outlook as well, evident from its revised economic outlook in its last meeting. But we expect the central bank to continue to put emphasis on growing risks with escalating geopolitical tensions with China, as well as emerging spikes in Covid-19 cases in multiple countries across the world. The strengthening Australian dollar is likely to also be a consideration by the central bank.

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Safe haven assets were mixed on Monday, likely as investors shift to risky assets while hedging against possible depreciation in the greenback. Gold inched higher closer towards 1,800's level. The Japanese yen strengthened against the dollar but fell against the euro. US Treasuries fell across the board, pushing benchmark 10-year yields 0.7bps higher to 0.68%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.49% +8.73 1,784.68
Silver +1.39% +0.25 18.27
USD/JPY -0.15% -0.16 107.35
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.4bps 0.16%
10-Year +0.7bps 0.68%
30-Year +1.2bps 1.44%
*Source: Bloomberg

Oil futures were mixed on Monday, likely thanks to the increasing likelihood of reintroduced lockdowns in the US. Cases of new Covid-19 cases in the US continues to rise in multiple states, which will likely put downward pressure on crude oil prices in the short-term on fear of fading demand for energy in the US. Florida's greater Miami area announced on Monday that it will be rolling back its reopening, calling on all restaurants to close on Monday as the number of Covid-19 cases surged in the US. The number of cases in the US looks likely to continue to rise as a result, since infection data will likely take time to reflect state governments’ efforts to curb the spread of the novel coronavirus. WTI crude oil futures may as a result continue to face downward pressure in the short-term as a result, although the widening of the spread between it and the Brent benchmark may be curbed since a wide spread will increase demand for US crude oil exports.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +0.70% +0.30 43.10
WTI -0.05% -0.02 40.63
*Source: Bloomberg

Asian stocks look likely to trade slightly curbed today as news of increasing Covid-19 cases and reintroductions of lockdowns will likely weigh on investors' sentiment. The Nikkei and KOSPI were trading slightly lower as of Tuesday 9.26am (GMT +8), while the ASX200 was trading slightly higher. Futures tracking major indices in the US were slightly higher as of 9.17am (GMT +8) but was shifting to trade lower on the day.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.07% -15.64 22,698.80 9:06:25 AM
KOSPI -0.12% -2.55 2,185.38 9:26:20 AM
ASX200 +0.21% +12.69 6,027.30 9:26:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.01% +2.00 26,180.00 9:17:44 AM
US Futures +0.06% +2.00 3,174.00 9:17:43 AM
Nasdaq Futures +0.33% +34.75 10,633.25 9:17:43 AM
*Source: Bloomberg

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

  • RBA Monetary Policy Decision/Statement (12.30pm)
  • Japan May Leading Index (P) (1pm)
  • Germany May Industrial Production (2pm)
  • Canada June PMI (Ivey) (11pm)