Wednesday, July 22, 2020

Asia Times: Euro reaches new high since January 2019 after EU leaders agree on a record stimulus package for the region’s economic recovery

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  • Dollar
  • Gold
  • Yen
  • Euro
  • Stocks
  • Oil
  • US earnings' season

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Market Recap: Euro reaches new high since January 2019 after EU leaders agree on a record stimulus package for the region’s economic recovery

Wall Street started Tuesday's trading session surging after the University of Oxford's experimental vaccine developed with AstraZeneca showed promising immune response in its early-stage human trials but reversed some of its gains on concerns that the next round of fiscal stimulus in the US will be delayed again. A record level stimulus package from the EU also likely helped drive stock prices higher at the start of the trading session. Stock prices fell late into Tuesday's trading session after Senate Majority Leader Mitch McConnell told Politico he does not expect Congress to pass the next stimulus bill in the next two weeks. McConnell's comments casted doubt on the expected fiscal stimulus bill from the US government as the increased unemployment benefits as part of its previous stimulus bill earlier in March comes to an end this month.

Most of the reversal of gains was due to the slump in tech sector stocks however, implying that while there was concern, risk appetite grew in the overall financial market. Energy, financials and industrial sector stocks rose the most among the S&P500 sectors, while the technology and communication services sector fared the worse.

In company news, Texas Instruments' shares advanced 0.94% in after-hours trading after beating estimates. The company reported better-than-expected profits for the quarter ended June 2020 at US$1.48/share, surpassing analysts’ estimates of US$0.872/share. While its forward guidance for the current quarter (earnings projected to range between US$1.14 to US$1.34 per share, above analysts' estimates of US$0.98 per share) was also stronger-than-anticipated, caution from the chipmaker's management team dampened investor sentiment slightly. The company also stated that it was unsure if the surge in purchases was due to an organic pickup in demand or inventory build-up by its customers to cushion against another potential disruption to the global supply chain.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.60% +159.53 26,840.40
S&P500 +0.17% +5.46 3,257.30
Nasdaq -0.81% -86.73 10,680.36
*Source: Bloomberg

The greenback fell against all other G10 currencies, signalling the growing risk appetite in financial markets. While there were concerns that the next fiscal stimulus bill in the US may potentially be another two weeks away, investors are likely already pricing in its impact on the dollar. Rising infections in the US isn’t helping the outlook for the US economy as well, as cases continue to surge in parts of the country. US President Donald Trump's reversal in tone in regards to the virus probably amplified concerns for the outlook for the US' economic recovery, encouraging people in the US to wear masks while asking younger Americans to avoid packed bars and other crowded indoor gatherings. The severity of rising in the cases in the US is likely to continue to put more strain on the US health system, and consequently the economy as states such as California continue to see rising number of Covid-19 infections.

The euro continued to climb against the dollar to its highest level since January 2019 after EU leaders finally agreed on a record stimulus package to help the bloc's economic recovery. EU leaders agreed on a 750-billion-euro stimulus package in the early hours of Tuesday in Brussels. The stimulus package will be made up of 390 billion euros worth of grants and 360 billion euros worth of low interest rate loans. The euro looks likely to continue to maintain its upward trajectory against the dollar as it manages to maintain its control over the spread of the novel coronavirus in contrast to the US.

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Safe haven assets rose on Tuesday, but gains were more likely due in part to the falling US dollar instead of risk aversion. Gold climbed closer towards its 2011 record of 1921.17. With more US fiscal stimulus on the way, it looks likely that the precious metal will be able to break that level, although there will probably be some resistance before that. The Japanese yen strengthened against the greenback but fell against the euro US Treasuries traded fairly muted, but rose across the board, pulling 10-year yields down by 1bp to 0.60%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +1.33% +24.14 1,841.91
Silver +7.01% +1.40 21.30
USD/JPY -0.44% -0.47 106.80
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.6bps 0.14%
10-Year -1.0bps 0.60%
30-Year -0.3bps 1.31%
*Source: Bloomberg

Oil futures climbed higher on Tuesday, with both Brent and WTI crude oil benchmarks reaching new record highs since oil prices started the recover from the impact of the Covid-19 lockdowns since March. On the demand side, the EU's record stimulus package and positive data from Oxford's experimental vaccine co-developed with AstraZeneca likely helped boost sentiment. An expected stimulus package in the US, while potentially delayed, also probably had a net positive impact on oil prices as well. Increasing cases of Covid-19 were mostly ignored in contrast. On the supply side, the American Petroleum Institute (API) showed an increase in US crude oil stockpiles of 7.5 million barrels for the week ended July 17th. The API report also showed gasoline stockpiles and distillate stockpiles contracting last week, suggesting that demand for oil maybe continuing to pick up in the US despite the growing number of Covid-19 cases. Traders will hence likely be focused on today's official US crude oil inventories report from the US Energy Information Administration as a result.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +2.40% +1.04 44.32
WTI +2.44% +1.00 41.92
*Source: Bloomberg

In Asia, stocks were trading mixed but skewed closer towards the downside on Wednesday morning as investors were mixed on a potential delay to the next stimulus bill from the US. The Nikkei and ASX200 were trading lower while the KOSPI was slightly higher in the early hours of Wednesday's trading session. Futures in the US were trading higher as of 8.42am (GMT +8). Quarterly earnings reports from Microsoft and Tesla will be next major focus for investors. Microsoft looks more likely to beat estimates as it benefits from a surge in demand for its cloud computing and team collaborating products amid the transition to remote working environments. But there may be some caution in its forward guidance as demand moving forward is likely to start to ease relative to before. Trader's will be on Tesla's vehicle deliveries and its profits, as it targets its forecast for 500,000 deliveries this year. Profitability will also be a key factor for the automaker as the Covid-19 pandemic likely resulted in increased costs for production.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.30% -69.03 22,815.19 8:32:50 AM
KOSPI +0.14% +3.21 2,232.04 8:52:50 AM
ASX200 -0.97% -59.20 6,097.10 8:52:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.29% +77.00 26,803.00 8:42:54 AM
US Futures +0.19% +6.25 3,257.50 8:42:52 AM
Nasdaq Futures +0.11% +11.50 10,862.50 8:42:52 AM
*Source: Bloomberg

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

  • US Jul 17th Mortgage Applications (MBA) (7pm)
  • Canada Jun Inflation Rate (CPI) (8.30pm)
  • US Jun Existing Home Sales (10pm)
  • US Jul 17th Crude Oil Stocks Change (EIA) (10.30pm)

 

Companies reporting earnings next include (all timings in GMT +8):

  • Tesla (5.30am +1)
  • Microsoft (5.30am +1)