Monday, July 13, 2020

Asia Times: Positive news on Gilead’s experimental antiviral drug helps drive US stocks higher on Friday ahead of the upcoming earnings season

Tags
  • Dollar
  • Gold
  • Yen
  • Stocks
  • Oil

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Market Recap:Positive news on Gilead’s experimental antiviral drug helps drive US stocks higher on Friday ahead of the upcoming earnings season

Stocks on Wall Street advanced last Friday in a reversal from defensive to risk-on positions thanks to positive results from Gilead's antiviral drug trials. Gilead's remdesivir, an investigational antiviral for the treatment of Covid-19, was found to be associated with significant improvement in clinical recovery and a 62% reduction in risk of mortality compared with standard care in a comparative analysis of its phase three SIMPLE-Severe trial of the antiviral drug and a real-world retrospective cohort of patients with severe Covid-19. While the company highlighted that further clinical trials were required to confirm its findings, it helped boost risk sentiment in financial markets as optimism that a viable treatment for Covid-19 patients may help alleviate the pressure on health systems around the world. Also on Friday, US President Donald Trump told reporters on his way to Florida that the a phase two trade deal with China was not under consideration and that the relationship with China has been severely damaged, highlighting the steady deterioration in US-China relation since the start of the year following the phase one trade agreement. The news had only a slight and temporary impact on stock prices, signalling that stock market valuations in the US may be reflective of the over-optimism among investors.

In sector news, the financial and energy sectors were among the top performers among S&P500 sectors, while health care and technology lagged the most, confirming that positions were skewed towards growing risk appetite among market participants. With major US banks kicking off the upcoming earnings season this week, there may be room for a renewal in risk aversion as it looks more likely that loan loss provisions will rise again while consumer spending remains weaker than before. Forward guidance from the banks may also not be too positive, as a result of rising risk of accelerating Covid-19 cases in multiple states forcing more lockdowns in the US as well as an imbalance in economic recovery in the short-term. However, trading revenue is likely to be the segment to outperform again with volatility in the financial markets remaining strong during the quarter ended June 30th.

Indexes Daily Change (%) Net Change Closing Price
Dow +1.44% +369.21 26,075.30
S&P500 +1.05% +32.99 3,185.04
Nasdaq +0.66% +69.69 10,617.44
*Source: Bloomberg

The CSI300 was the top performer among major global indices, rising more than 7% after Chinese media helped fuel optimism for equity performances in Chinese stock exchanges. Most of the CSI300's gains came on Monday after state-owned China Securities Journal’s front-page editorial signalled its bullish outlook for the Chinese stock market. The Nasdaq followed with 4.01% in weekly gains as tech's rally was driven by increasing worries of lockdowns in certain states thanks to the accelerating pace of new Covid-19 infections and hospitalisations, and the lack of upbeat economic data that was seen early in the previous week. The ASX200 lost the most among major global indices, as the new six-week lockdown in Melbourne to help curb the spread of the Covid-19 virus weighs on the earlier optimism that the Australian economy was on track to outperform other developed economies.

Indexes Weekly Change (%) Net Change Closing Price
Dow +0.96% +247.94 26,075.30
S&P500 +1.76% +55.03 3,185.04
Nasdaq +4.01% +409.81 10,617.44
FTSE100 -1.01% -61.89 6,095.41
Dax +0.84% +105.53 12,633.71
Stoxx +0.06% +1.84 3,296.22
Nikkei -0.07% -15.67 22,290.81
CSI300 +7.55% +333.53 4,753.13
KOSPI -0.10% -2.16 2,150.25
ASX200 -2.29% -138.66 5,919.22
HSI +1.40% +354.29 25,727.41
STI -0.01% -0.29 2,652.65
*Source: Bloomberg

The dollar fell among most G10 currencies as a result of the growing risk appetite seen in financial markets on Friday. Scandinavian currencies performed the best, while the Australian dollar fell the most as renewed lockdowns in Australia's city of Melbourne weighed on the country's economic outlook. While the safer greenback and Swiss franc underperformed on Friday, the Japanese yen hit a two-week high against the dollar, highlighting that the Trump's downbeat comments on a phase two trade deal with China as well as rising downside risks had some traders concerned. The strengthening yen may also be a sign of risk aversion ahead of this week, with major banks in the US set to report quarterly earnings. Investors may be shifting to the yen to help hedge against a possible downward revision to major banks' outlook for the US economy, since banks are more likely to have a better understanding on impact of Covid-19 on the current business environment and future expectations as compared to the previous earnings announcement earlier this year.

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Safe haven assets were mostly down on Friday thanks to positive news on a possible treatment for Covid-19 with Gilead's remdesivir antiviral drug. Gold fell slightly below 1,800 on Friday, marking its second day of losses. The Japanese yen strengthened against both the dollar and euro. US Treasuries fell across the board, sending benchmark 10-year yields 3.1bps higher to 0.64%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.27% -4.85 1,798.70
Silver +0.37% +0.07 18.72
USD/JPY -0.25% -0.27 106.93
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.2bps 0.15%
10-Year +3.1bps 0.64%
30-Year +2.2bps 1.34%
*Source: Bloomberg

Oil futures gained on Friday in tandem with rising optimism in financial markets. Sentiment for energy demand to recover was likely boosted thanks to Gilead's remdesivir report. However, crude oil futures were trading lower on Monday morning, after Bloomberg reported that OPEC+ may be considering to start tapering back production limits in August, after being extended to the end of July. The report cited anonymous sources from the Russian energy industry, but it was likely enough to help raise uncertainty on the future of global crude oil supply if the bloc decides to reduce production cuts as risks for reintroduced lockdowns start to materialise. With multiple states in the US as well as more countries experiencing a second wave of Covid-19 infections, the outlook for demand for energy may not be as optimistic as before. While there will likely not be another dive in crude oil prices to the extent that was seen in late April, it does confirm expectations that the recovery in crude oil prices is likely to be a slow and long one.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +2.10% +0.89 43.24
WTI +2.35% +0.93 40.55
*Source: Bloomberg

Asian stocks look set to start the week with gains on Monday morning, tracking gains in the US. The Nikkei, KOSPI and ASX200 were all trading higher in early hours of Monday's trading session. The STI looks likely to gain on Monday as well, after Friday's general elections in the country saw its ruling party retain its majority position despite its worse performance in 55 years in office since independence, winning 83 out of the 93 seats in parliament. Futures tracking major indices in the US were also trading higher, signalling that optimism may continue into market open in the US.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +1.42% +321.72 22,612.53 8:45:50 AM
KOSPI +1.24% +26.98 2,177.23 9:05:50 AM
ASX200 +1.30% +77.68 5,996.90 9:05:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.41% +108.00 26,085.00 8:55:43 AM
US Futures +0.34% +11.00 3,189.25 8:55:46 AM
Nasdaq Futures +0.45% +49.50 10,886.75 8:55:46 AM
*Source: Bloomberg

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

  • Japan's May Tertiary Industry Index (12.30pm)

Companies reporting earnings for the day ahead (all timings in GMT +8):

  • PepsiCo (6pm)