Friday, July 31, 2020

Asia Times: : The deepest US economic contraction in history have not surprised the market, Nasdaq led the market again with better-than-expected earnings in tech giants

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  • US earnings' season

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Market Recap: The deepest US economic contraction in history have not surprised the market, Nasdaq led the market again with better-than-expected earnings in tech giants

 

-32.9%, the US Q2 GDP finally released and answered the market well-discussed query in recent days. Despite being the biggest decline on record, the record is not as bad as the market forecast -34.5%, which therefore have not surprised the market much on this historical moment. Markets mostly ended lower but clawed back from their worst levels of the session. The details show that consumer spending was the main drag, falling 34.6% annualized, while fixed investment fell by 29.9%, led by a 38.7% plunge in residential investment. On the positive side, government spending rose 2.7%, while net exports were a net positive contributor, adding a rather paltry 0.7 percentage points to headline GDP.

With regards to labour market, figures yesterday disappointed the market and arouse whether a V-shaped recovery which Wall Street has already priced is tenable or not. The first-time claims for unemployment benefits rose slightly last week, to 1.43 million from an upwardly-revised 1.42 million, while continuing claims also rose to 17 million in the week ended July 18. This reinforces the virus fear factor in the market, states reversing course on reopening (leading to job losses) and the likelihood of a significant cut to the level of unemployment benefits means that the upcoming data flow may not point to as vigorous recovery as markets are currently pricing. DJI and S&P therefore closed 0.9% and 0.4% lower on Thursday.

However, Nasdaq eked out a positive gain due to the brighter-than-expected quarterly results released from the technology and e-commerce giants after the bell on Thursday, which could influence trade to end this choppy week. Apple announced posted revenue of $59.7 billion and earnings per share of $2.58, up 11% and 18% year-on-year respectively. Both results beat the street’s expectations. Apple is also announcing a four-for-one stock split that will take effect for shareholders of record as of August 24, with split-adjusted trading to begin on August 31.

Amazon also announced its quarterly result by reporting revenue of $88.9 billion, up from $63.4 billion in the year-ago quarter, and ahead of an expected result of $81.53 billion. The company also managed to earn $10.30 per share (GAAP, diluted), far ahead of a market expected average of $1.46. The only possible mark against Amazon was that AWS, the company’s cloud computing service, only grew 29% in the quarter, which was slower than the 33% in Q1 2020. Still, shares of Amazon are up around 4.9% in after-hours trading, after gaining 0.6% during regular trading.

Facebook’s quarterly result is also a stunning surprise to the market, the company reported $18.7 billion in revenue, up 11% from its year-ago result of $16.9 billion. Investors had expected just $17.4 billion in top-line. Facebook bested earnings per share expectations, reporting $1.80 in per-share profit, up nearly 100% from its year-ago result of $0.91 per share. Facebook shares are up nearly 6.5% in after-hours trading, after gaining about half a point during regular trading.

 

Indexes Daily Change (%) Net Change Closing Price
Dow -0.85% -225.92 26,313.65
S&P500 -0.38% -12.22 3,246.22
Nasdaq +0.43% +44.87 10,587.81
*Source: Bloomberg

The dollar extended its drop to a two-year low on Thursday and the dollar index has drop below 93’s level in Asia early session, even with a better-than-expected Q2 GDP. US President Donald Trump floated the idea of delaying the November election, while he himself is not able to delay the presidential election without Congress, partially controlled by the Democrats, first approving the decision.

Despite the fact that Germany has reported a sharp 11.7% annualized drop on Q2 GDP, the worst contraction since records began in 1970, Euro has gained support from 1.1730’s level yesterday and continues its recent gains to reach nearly 1.19’s level with the weakened dollar. The commodity-linked currencies such as the Norwegian krones and Canadian dollar dropped as oil slumped.

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The Safe-haven asset Gold price fell by 0.6% to settle at $1,942.30 an ounce on Thursday, ceased its consecutively ninth straight advance, which is its longest win streak since a 10-session climb ended in January. Worries are still arousing in the market as Americans hold an increasingly negative view of China, blaming Beijing for failing to contain the Covid-19 pandemic and expressing increasing pessimism about the economic ties between the two nations, according to a survey by the Pew Research Center. The yield on the 10-year U.S. Treasury note dropped 3.8 basis points to 0.540% to around its lowest since March 9.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.72% -14.15 1,956.64
Silver -3.34% -0.81 23.50
USD/JPY -0.18% -0.19 104.73
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -1.4bps 0.12%
10-Year -2.8bps 0.55%
30-Year -2.9bps 1.21%
*Source: Bloomberg
Oil Futures Daily Change (%) Net Change Closing Price
Brent -1.85% -0.81 42.94
WTI -3.27% -1.35 39.92
*Source: Bloomberg

Asian stocks have opened mixed in Friday morning trade following a record contraction in US Q2 GDP. Mainland Chinese stocks were higher in early trade, with the Shanghai composite up about 1%. Meanwhile, the Hang Seng index in Hong Kong advanced 0.73%. China’s official manufacturing PMI for July came in above expectations on Friday, which laid at 51.1, exceeded the expectations of a reading of 50.7. Markets in Singapore, Malaysia and Indonesia are closed for a holiday on Friday.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -1.91% -418.25 21,920.98 10:35:03 AM
KOSPI -0.16% -3.61 2,263.40 11:36:00 AM
ASX200 -1.64% -97.78 5,953.30 11:35:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.35% +91.00 26,309.00 11:25:55 AM
US Futures +0.36% +11.75 3,260.50 11:26:00 AM
Nasdaq Futures +1.05% +115.00 10,908.75 11:26:00 AM
*Source: Bloomberg