Tuesday, July 28, 2020

Asia Times: Stocks gain on stimulus hopes and possible dip-buying; Gold reaches new record highs and shows no sign of slowing

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

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Market Recap: Stocks gain on stimulus hopes and possible dip-buying; Gold reaches new record highs and shows no sign of slowing

Stocks in the US started the week in the green as stimulus hopes and dip-buying helped equities recover from the selloff towards the end of last week. Optimism may have been fueled after Senate Republicans proposed to extend the current weekly unemployment insurance ending on July 31st, but at a reduced rate of US$200 from US$600 in their new relief package. While there was immediate opposition against the proposal from Democrats, it does serve as a starting point for negotiations, signalling some progress on the fiscal stimulus front. Senate majority leader Mitch McConnell also said that the current proposal will include US$1,200 payments to Americans, US$190 billion worth of loans to small business and US$100 billion in loans for businesses that operate seasonally or in lower-income areas.

The technology sector was the top performing among S&P500 sectors, signalling that gains in the US equity markets may have been mostly from speculation that upcoming earnings reports from major tech companies are more likely to beat expectations since they are more well positioned to do so in comparison to other industries. Dip-buying was likely also another driver for tech giants, after each of the FAANG stocks lost upwards of 3% of their value last week.

Hasbro's shares plunged more than 5% on Monday after reported worse-than-expected earnings. The company's revenue declined to US$860.3 million while profit fell to 2 cents a share, much lower than the US$994.8 million revenue and 20 cents a share profit that analysts were expecting. The outlook for the company had some bright spots, as expectations for the business climate to improve moving into the third quarter for the year and possibly a good holiday season this year. Its supply chain issues have also seemed to be mostly resolved, although uncertainty will likely remain high in regards to the Covid-19 pandemic. Hasbro's earnings highlighted that upcoming earnings reports are likely to tilt towards the downside, with some improvements in sentiment as we head into the rest of 2020. This is likely due to the severity of lockdowns across the world which likely peaked in the second quarter of the year.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.43% +114.88 26,584.77
S&P500 +0.74% +23.78 3,239.41
Nasdaq +1.67% +173.09 10,536.27
*Source: Bloomberg

In the foreign exchange market, the dollar dived another 0.81%, breaking past September 2018's low to trend lower towards June 2018's low of around 93.20. The shift to gold and other safer currencies was apparent for the greenback, implicitly showing the impact of the record levels of stimulus measures in the US and the US' ineffectiveness in containing the spread of Covid-19 infections domestically. Reduced risk aversion resulting from expectations for the upcoming fiscal stimulus bill form the US government likely also put downward pressure on the dollar. In addition, the dip in the dollar also suggests that traders are speculating that the Fed's forward guidance in this week's monetary policy statement will be more dovish than before, to help support an economic recovery. Better-than-expected durable goods orders (A: 7.3%, E: 6.9%, P: 15.7%) was eclipsed by some slight weakness in the core (ex. transportation) measurement (A: 3.3%, E: 3.6%, P: 3.7%), but the dataset had little impact on the currency.

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Safe haven assets were mixed on Monday, as a result of some likely hedges against the rise in equity prices. Gold reach new record highs on Monday, closing 2.11% higher at 1,942.24. The precious metal showed no sign of slowing, breaking past 1,950.00's level on Tuesday morning in Asia. The continued rise in gold prices can be attributed to both the falling dollar and sentiment that there may be more delays to the upcoming fiscal stimulus measures from the US than expected. The precious metal is also now likely experiencing gains from both fundamental hedges against the dip in the greenback as well as speculation, which signals that we may see gold continue to rise in the short-term thanks to momentum. The Japanese yen gained against the dollar but fell slightly against the euro, highlighting the shift in demand from the dollar to the euro. US Treasuries mostly fell on Monday, indicative of the shift towards riskier financial assets in equity markets. Benchmark 10-year yields rose 2.6bps as a result, to 0.62%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +2.11% +40.22 1,942.24
Silver +8.00% +1.82 24.59
USD/JPY -0.73% -0.77 105.37
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.4bps 0.15%
10-Year +2.6bps 0.62%
30-Year +3.1bps 1.26%
*Source: Bloomberg

Oil futures inched higher on Monday, likely finding some strength as the dollar weakened. The outlook for oil however, looks to still be tilted towards the downside with Vortexa data showing crude oil held around the world on tankers that have been stationary for at least seven days to be more than 2 times higher than last year, despite a 4.8% drop as of July 24th to 174.73 million barrels from the week earlier. With oil prices inching higher, US oil producers look likely to increase production as well. This was already signalled by a slight increase in oil rigs from the Baker Hughes dataset last week. Coupled with incoming oil supply from the start of OPEC+'s tapered production cuts in August, as well as a dip in demand in China for crude oil as a result of the severe floods in the southern region of the country, oil supply worries may put downward pressure on crude oil prices in the upcoming weeks.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +0.16% +0.07 43.41
WTI +0.75% +0.31 41.60
*Source: Bloomberg

Asian stocks look set to rise on Tuesday, tracking gains in the US. The Nikkei, KOSPI and ASX200 were all trading higher in the early hours of Tuesday's trading session. Futures tracking major indices in the US were trading in the green as of 9.01am (GMT +8) on Tuesday as well, suggesting that optimism and risk off sentiment may continue as more corporates announce earnings in the US. Tech traders will likely be focused on earnings from AMD and Seagate as an indicator for the rest of the industry. AMD’s stock is likely to be highly volatile as expectations for the company spiked following Intel’s delay to its seven-nanometer-processes. But AMD's outlook looks likely be able to benefit from its chips in upcoming console releases towards the end of the yea, as well as its current offering in terms of server-grade processors. However, caution may be reiterated by the chipmaker's executives as consumer demand may face headwind as a result of high levels of unemployment.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +0.21% +48.61 22,764.46 8:51:40 AM
KOSPI +1.81% +40.97 2,258.83 9:11:40 AM
ASX200 +0.95% +58.03 6,102.20 9:11:15 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.31% +83.00 26,567.00 9:01:43 AM
US Futures +0.32% +10.50 3,242.75 9:01:43 AM
Nasdaq Futures +0.61% +65.00 10,740.25 9:01:44 AM
*Source: Bloomberg

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

  • US Jul Consumer Confidence Index (Conf. Board) (10pm)

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

  • McDonald's (8.30pm)
  • Corning (8.30pm)
  • 3M (9pm)
  • JetBlue Airways (10pm)
  • AMD (5am +1)
  • Visa (5am +1)
  • Starbucks (5am +1)
  • eBay (5am +1)
  • Seagate (5am +1)