Friday, July 24, 2020

Asia Times: Dollar falls as new unemployment claims rises, driving the euro and gold higher on Thursday

Tags
  • China
  • Dollar
  • Gold
  • Euro
  • Stocks
  • Oil
  • US earnings' season

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Market Recap: Dollar falls as new unemployment claims rises, driving the euro and gold higher on Thursday

Stocks in the US dipped on Thursday after there was an uptick in new jobless benefit claims for last week. Weakness in the tech sector also drove losses on Thursday, after Microsoft's Azure cloud computing segment failure to meet expectations put downward pressure on its stock despite beating estimates in its other segments. Initial jobless claims spiked to 1.416 million for the week ended July 18th, growing higher than the 1.307 million in the prior week and above economists' estimates at 1.300 million. The uptick in unemployment claims likely caused further concern for the US economy post-Covid-19 and dampened some of the optimism that was seen earlier this week. Anticipation for US-China tensions to escalate likely contributed to some slight risk aversion as well, after Global Times' Hu Xijin tweeted that China will respond to the US' decision to close the Chinese consulate in Houston on Friday.

Smaller cap indices outperformed the major indices in the US, suggesting that Thursday's drop could be attributed to a correction in growth stocks as well. Both the S&P500 and Dow lost more than 1% while the Nasdaq composite index fell more than 2% while the S&P600 small cap index was 0.64% higher. Among S&P500 sectors, tech fell the most as the three majors (Apple, Microsoft, Amazon) fell more than or close to 4% on Thursday. Consumer staples sector stocks managed to eke out gains, along with financials and utility stocks.

Intel's stock plunge as much as 10% in after-hours trading after the company announced that it was experiencing another production delay to its 7-nanometer-based processors, by approximately six months relative to prior expectations. It's first 7-nanometer chips is now expected to go on sale at the end of 2022 or early 2023, a year behind schedule. Meanwhile its rival, AMD, who has already been selling 7-nanometer-based processors, saw a surge of 8.02% in its stock price following the news. Intel otherwise mostly outperformed expectations for the quarter ended June 31st 2020, with the exception of its gross profit margin.

Other corporate earnings highlights include Twitter's weaker-than-expected revenue as its advertising business faced downward pressure as companies cut marketing budgets to conserve cash amid the Covid-19 pandemic. As for airlines in the US, Southwest Airlines' operating revenue and loss per share was better-than-expected. American Airlines' adjusted loss per share was also better-than-expected. But the outlook for air travel demand remained bleak as both companies pulled back on their flight schedules for the current quarter as momentum in demand for flights fades.

Indexes Daily Change (%) Net Change Closing Price
Dow -1.31% -353.51 26,652.33
S&P500 -1.23% -40.36 3,235.66
Nasdaq -2.29% -244.71 10,461.42
*Source: Bloomberg

In the foreign exchange market, demand for the dollar continues to fade even as risk aversion was seen in financial markets on Thursday. Safe haven currencies led gains while commodity-related currencies dipped. The spike in unemployment data likely had an adverse effect on the greenback, as did the growing number of Covid-19 cases in multiple states. The severity of the resurgence of Covid-19 cases continued to become more apparent on Thursday as well, as deaths in Florida reached a new record. California reported an acceleration in new Covid-19 cases as well, keeping the number of new infections in the US above the seven-day moving average for the second day in a row. US President Donald Trump’s cancelling of his nominating convention in Jacksonville, Florida may also negatively impact market sentiment today as Trump continues to shift away from his original tone in regards to the coronavirus pandemic.

The euro continues to benefit from the falling dollar as well, and has broken 1.1600's level on Friday morning to reach its highest level since September 2018. Gfk's better-than-expected consumer confidence for August in Germany (A: -4.5, E: -0.3, P: -9.6) also helped the euro to gain against the dollar. There was likely still some spillover effect from the signing of the EU's recovery fund earlier this week as well. But it may be time for a possible correction soon, as EUR/USD regresses slightly back towards its mean as a result of possibly being overbought. The longer-term outlook for the euro still remains more rosy than the greenback however, as the EU continues to see success in its containment of the Covid-19 infections in the region.

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Demand for safe havens advanced on Thursday as well, as investors shift back into risk adverse assets. Gold continued to inch closer towards its record high of 1900.20. The Japanese yen strengthened against both the dollar and the euro. US Treasuries mostly gained across the board, although two-year treasuries fell slightly. Benchmark 10-year yields fell 2bps to 0.58% as a result.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.86% +16.03 1,887.44
Silver -1.77% -0.41 22.59
USD/JPY -0.27% -0.29 106.86
*Source: Bloomberg

Oil futures fell on Thursday as pessimism for an economic recovery and supply concerns impacted the outlook for oil. With cases in the US continuing to rise, traders are likely less optimistic for energy demand especially as OPEC+ members get ready to release an excess of more than a million barrels per day in August compared to July. Gains that were seen earlier this week after EU leaders agreed on a 750-billion-euro stimulus plan were mostly reversed as a result. The severe floods in the southern region of China in the past month looks likely to put downward pressure on demand for oil in China as well, as the impacted areas accounts for about two-thirds of China's total diesel consumption. There may be additional room for oil to fall in the short-term as a result, as economic factors indicate that it is unlikely for crude oil supply and demand to show signs of recovery in the next month. While there may be some positive effects from the upcoming fiscal stimulus bill in the US, it may only be temporary as multiple countries including the US continues to see a surge in Covid-19 cases.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -2.21% -0.98 43.31
WTI -1.98% -0.83 41.07
*Source: Bloomberg

Asian stocks look set to track the US in losses on Friday. Both the KOSPI and ASX200 were both trading lower in the early hours of Friday's trading session. The Tokyo Stock Exchange will remain closed today for the Sports Day holiday and will only reopen on Monday. Futures tracking major indices in the US were trading higher as of 9.02am (GMT +8), signalling that the correction seen in US equities on Thursday may ease on Friday.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei - - 22,751.61 -
KOSPI -0.06% -1.42 2,214.77 9:12:50 AM
ASX200 -1.00% -60.30 6,034.20 9:12:44 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.23% +64.00 26,607.00 9:02:57 AM
US Futures +0.31% +10.50 3,238.00 9:02:58 AM
Nasdaq Futures +0.42% +45.00 10,593.25 9:02:53 AM
*Source: Bloomberg

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

  • UK Jun Retail Sales (2pm)
  • Germany Jul Manufacturing/Services PMI (Markit) (P) (3.30pm)
  • Eurozone Jul Manufacturing/Services PMI (Markit) (P) (4pm)
  • US Jul Manufacturing/Services PMI (Markit) (P) (9.45pm)
  • US Jul New Home Sales (10pm)

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

  • American Express (8.30pm)
  • Verizon (7.30pm)