Monday, July 27, 2020

Asia Times: Gold’s rally shows no sign of stopping, surging past 1,900 and closer towards the intraday peak in 2011 of 1,921.17

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

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Market Recap: Gold’s rally shows no sign of stopping, surging past 1,900 and closer towards the intraday peak in 2011 of 1,921.17

Stocks in the US retreated on Friday likely as corporate earnings reports and geopolitical uncertainties dragged on investors sentiment ahead of the weekend. China called for the US consulate in the city of Chengdu to close on Friday, following an earlier decision by the US to shut China's consulate in Houston as tensions between the two superpowers continue to grow. Tech led losses among the 11 S&P500 sectors as Intel's stock dived 16.24% after the company announced that it was experiencing another six-month delay to its 7-nanomenter production process and that it was considering outsourcing major parts of the production, highlighting a major shift in direction for the company. The health care sector followed closely, signalling that Friday's losses was yet another correction of growth stocks that have largely benefitted from the Covid-19 pandemic.

American Express' stock retreated 1.39% after the firm reported worse-than-expected revenue for the quarter ended June 30th 2020. Revenue for the quarter fell 29% to US$7.68 billion despite card fees climbing 15%. Profit plunged 85% to 28 cents a share but managed to beat the median analyst estimate for losses. The company's struggle with reduced card spending was evident in its latest earnings report, with spending on its cards dropping 34% to US$205 billion, thanks in part to the dent in demand for travel and dining (its two largest co-brand card business partners are Delta Air Lines and Marriott International). Some positive news was that the company's efforts to rework its rewards program has likely helped lift some pressure off of the company as CEO Steve Squeri indicated that there wasn't an increase in total customer attrition levels from prior years.

Indexes Daily Change (%) Net Change Closing Price
Dow -0.68% -182.44 26,469.89
S&P500 -0.62% -20.03 3,215.63
Nasdaq -0.94% -98.24 10,363.18
*Source: Bloomberg

Major global indices made weekly losses last week, as concern for rising geopolitical tensions outweigh the potential benefits for the global economy following the EU's 750-billion-euro stimulus plan for the region. The Nikkei was the only exception, but it was mostly due to the Tokyo Stock Exchange being closed for Thursday and Friday's trading sessions. Consequently, we may see the Nikkei start this week lower as it returns some of last week's gains especially with the Japanese yen strengthening. Most major indices still look on track to end July with positive gains, although this week's corporate earnings from major oil and tech companies in the US may put some downward pressure on the overall index.

Indexes Weekly Change (%) Net Change Closing Price
Dow -0.76% -202.06 26,469.89
S&P500 -0.28% -9.10 3,215.63
Nasdaq -1.33% -140.01 10,363.18
FTSE100 -2.65% -166.48 6,123.82
Dax -0.63% -81.55 12,838.06
Stoxx -1.63% -54.71 3,310.89
Nikkei +0.24% +55.19 22,751.61
CSI300 -0.86% -39.11 4,505.59
KOSPI -0.03% -0.75 2,200.44
ASX200 -0.16% -9.63 6,024.00
HSI -1.53% -383.84 24,705.33
STI -1.49% -38.97 2,579.51
*Source: Bloomberg

Demand for the greenback continued to fade through Friday, even as geopolitical tensions rise and as risk aversion was evident in the equities market. Other safe haven currencies (Japanese yen and Swiss francs) were among the leaders in the G10 basket of currencies, indicating that the shift away from the dollar has become more apparent as the US continues to deal with rising Covid-19 cases in the country. The Dollar Index as a result hit its lowest since September 2018 after falling 0.27% to 94.44 on Friday. This week's FOMC monetary policy meeting looks unlikely to be the focus for the dollar however, with expectations for the Fed to keep monetary policy largely on hold while reiterating its previous statements. Focus instead will be on US lawmakers on the upcoming fiscal stimulus bill, as an agreement on the next stimulus measures looks unlikely to come before the end of July when the unemployment insurance as part of the CARES Act announced in March expires.

The EU's success in containment of the novel coronavirus has also helped proper the euro to become one of the best performing major currencies month-to-date, gaining 3.68% against the dollar. Gains in the euro may however start to slow as post-Brexit trade negotiations with the UK are likely to become a point of focus moving forward. Spain's uptick in Covid-19 cases since mid-July may also put some downward pressure on the currencies if containment of new clusters fails.

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Safe haven assets mostly advanced on Friday following the selloff in the equities market. Gold climbed past its all-time high closing price of 1900.02 in 2011 to a new record of 1902.02 on Friday. The precious metal showed no sign of stopping and is trading close to the 1,915 mark as of Monday 8.59am (GMT +8), chasing the record intraday peak in 2011 of 1,921.17. The Japanese yen advanced against both the dollar and euro as it takes over the greenback as investors' preferred safe haven currency. The strengthening yen may likely become an issue on for the Bank of Japan, with the currency strengthening past its four-month high of 105.83 on Monday morning. US Treasures were mixed, with 10-year treasures falling while two-year and 30-year treasuries were trading close to flat. Benchmark 10-year yield advanced 1.1bps as a result to 0.59%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.77% +14.58 1,902.02
Silver +0.78% +0.18 22.77
USD/JPY -0.67% -0.72 106.14
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.4bps 0.15%
10-Year +1.1bps 0.59%
30-Year -0.2bps 1.23%
*Source: Bloomberg

Oil futures gained slightly on Friday, possibly as the slowing pace of Covid-19 cases in the US outweighed rising US-China tensions. The pace of new Covid-19 cases in the US started to show signs of slowing as it dipped below the seven-day average. There were also some signs that the US oil industry is starting to recover, after Baker Hughes data released on Friday showed energy companies deploying an additional oil rig last week. Oil price may have some room to fall this week, as we move into August as supply for crude oil is set to increase next week with OPEC+ tapering output limits. But the downside looks likely to be small, with the pace of Covid-19 cases in the US continuing to slow, which should help fuel investors' optimism.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +0.07% +0.03 43.34
WTI +0.54% +0.22 41.29
*Source: Bloomberg

Stocks in Asia were trading mostly higher on Friday, possibly as optimism starting to return as new Covid-19 cases in the US looks to be slowing. The Nikkei was down in early trading, probably as a result of playing catch-up Friday's losses and as the Japanese yen continues to strengthen. The KOSPI and ASX200 were both trading higher in the early hours of Monday's trading session. Futures tracking major indices were also trading higher as of 9.06am (GMT +8) on Monday, suggesting that optimism may extend into trading hours in the US later today as well.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.70% -159.26 22,593.09 8:56:10 AM
KOSPI +1.24% +27.64 2,228.08 9:16:10 AM
ASX200 +0.25% +15.10 6,039.10 9:15:44 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.46% +122.00 26,444.00 9:06:13 AM
US Futures +0.43% +13.75 3,217.75 9:06:13 AM
Nasdaq Futures +0.51% +54.00 10,513.00 9:06:12 AM
*Source: Bloomberg

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

  • Germany Jul Business Climate/Expectations Survey (IFO) (4pm)
  • US Jun Durable Goods Orders (P) (8.30pm)

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

  • Hasbro (8.30pm)