Thursday, July 30, 2020

Asia Times: The Fed’s increasingly dovish tone boosts market sentiment ahead of earnings reports from major tech companies

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

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Market Recap: The Fed’s increasingly dovish tone boosts market sentiment ahead of earnings reports from major tech companies

Stocks in the US started Wednesday's trading session higher and continued to gain throughout the day after getting a booster from the Fed's increased dovishness. As expected, the Fed kept its monetary policy on hold while reinforcing its dovish tone. Fed Chair Jerome Powell's post-meeting press conference was the highlight of the day, where he sounded more dovish than ever before by reiterating statements made at the previous meeting while noting that there were signs that the resurgence of Covid-19 infections were starting to weigh on economic activity. Uncertainty surrounding the impact of the resurgence of the virus was also another highlight of the speech. While there wasn't more explicit forward guidance, Powell’s more dovish statements regarding the central bank’s commitment to keep monetary policy at current levels for an extended period did help boost sentiment that lower borrowing costs were here to stay for an extended period of time in relation to the Covid-19 pandemic.

All 11 S&P500 sectors ended the day higher, highlighting the shift back to optimism in the market after last week's rout. Energy sector stocks led gains in the S&P500, strengthened by a drop in US crude oil stockpiles. There may be a pullback for oil stocks however, since gasoline and diesel demand in the US are still showing signs of weakness in the Energy Information Administration's (EIA) latest weekly crude oil stocks report. Tech stocks were among the top gainers in the S&P500 as well, driven mostly by AMD's stock surging 12.54% after beating expectations in its latest earnings report.

In company news, Qualcomm's stock surged more than 11% in after-hours trading after the chipmaker beat estimates in its latest quarterly earnings report. Its strong forward guidance for revenue (Qualcomm expects revenue to range between US$5.5 billion to US$6.3 billion for the current quarter, topping estimates of US$5.77 billion) for the current quarter also signalled that demand for smartphones may be fuelled with the launch of 5G networks around the world. The company’s outlook also benefitted from a new licensing deal with Huawei Technologies Co.

The Covid-19 pandemic continued to put more strain on Boeing, sending the aircraft maker's stock down 2.83% on Wednesday after it reported worse-than-expected earnings for the quarter ended June 30th. The company reported operating cash burn for Q2 of US$5.28 billion, better than estimates of US$6.6 billion. But its announcement to further cut its 787 aircraft production to six per month in 2021 and its Q2 revenue of US$11.81 billion falling short of the expected US$12.99 billion suggested that more downward pressure on the company is to be expected in the coming months.

Big tech is up next to report quarterly earnings. Expect mixed sentiment among the major tech companies’ earnings reports this week. Apple and Amazon look set to get a boost from the Covid-19 pandemic. Apple will likely see some strength from iPhone sales, thanks to the recent release of its iPhone SE line. Its services revenue will likely be the focus as well, with the outlook for its new products such as the Apple Card and Apple TV+ looking to have possibly been strengthened by the onset of the pandemic. Amazon looks likely to continue to benefit from the pandemic as well in terms of sales in the consumer staples and cloud services segments, but profit margins may continue to see some negative impact as a result of rising operating costs. Google and Facebook will likely suffer from a reduction in corporate advertising spending, but may be able to benefit in other areas such as user count (Facebook and Instagram) and remote working services (Google Suite).

Indexes Daily Change (%) Net Change Closing Price
Dow +0.61% +160.29 26,539.57
S&P500 +1.24% +40.00 3,258.44
Nasdaq +1.35% +140.85 10,542.94
*Source: Bloomberg

The foreign exchange market continues to show the dollar falling out of favour, as the greenback extends into another day of losses. The dollar has now fallen 11 out of the last 13 trading sessions even after rising slightly on Tuesday. The Fed's overall dovish tone negatively impacted the dollar, although there was an uptick to 93.53's level in the hour following the Fed's decision. Top gainers were the Norwegian Krone, Swedish Krona and euro, highlighting the risk-on sentiment in financial markets for the day.

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Safe haven assets continued to climb higher on Wednesday in tandem with stocks. The continued rise in demand for safe haven assets suggests that hedges are continuingly being made against the current general direction of the market, possibly against both the falling greenback and a potentially overheated stock market. Gold reached 1,970’s level again, while the yen advanced against the dollar but weakened against the euro. US Treasuries were mostly higher with the exception of 30-years. Benchmark 10-year yields were 0.5bps lower at 0.57%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.63% +12.36 1,970.79
Silver -0.38% -0.09 24.31
USD/JPY -0.16% -0.17 104.92
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.8bps 0.13%
10-Year -0.5bps 0.57%
30-Year +1.9bps 1.24%
*Source: Bloomberg

Oil futures rose on Wednesday thanks to the EIA's weekly report showing US crude oil stockpiles fell 10 million barrels during the week ended July 24th, the largest decline since December. The Fed's renewed commitment to help support the US economy's recovery was likely also welcomed as positive news for the industry by traders. But caution likely prevented oil futures from advancing any further, since supply in the market is still perceived to likely be higher than expected demand. EIA's report also showed gasoline and diesel inventories continuing to remain high, a signal that organic demand has not recovered in the US. In addition, with more oil supply expected to return to the market in August, there is likely little room for oil prices to gain as demand will become the key focus moving forward for oil investors.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +1.23% +0.53 43.75
WTI +0.56% +0.23 41.27
*Source: Bloomberg

In Asia, stocks look set to trade higher on Thursday, benefiting from the spill over of optimism seen in the US on Wednesday. The Nikkei, KOSPI and ASX200 were all trading higher in the early hours of Thursday's trading session. Futures tracking major in the US however were down but close to flat as of 8.58am (GMT +8).

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +0.26% +58.22 22,455.33 8:48:15 AM
KOSPI +0.37% +8.31 2,271.47 9:08:10 AM
ASX200 +0.59% +35.72 6,042.10 9:08:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.09% -24.00 26,416.00 8:58:15 AM
US Futures -0.08% -2.50 3,250.25 8:58:16 AM
Nasdaq Futures -0.02% -2.50 10,671.75 8:58:16 AM
*Source: Bloomberg

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

  • Germany Jul Unemployment Change/Rate (3.55pm)
  • Germany Q2 GDP (P) (4pm)
  • US Jul 24th Initial Jobless Claims (8.30pm)
  • US Jul 17th Continuing Jobless Claims (8.30pm)
  • US Q2 GDP (P) (8.30pm)
  • US Q2 Inflation Rate (PCE) (P) (8.30pm)

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

  • Mastercard Inc (9pm)
  • Kellogg (9.30pm)
  • Ford (4.05am +1)
  • Alphabet (4.30am +1)
  • Gilead Sciences (4.30am +1)
  • Apple Inc (5am +1)
  • Xilinx (5am +1)
  • Amazon (5.30am +1)
  • Facebook (6am +1)