Wednesday, August 5, 2020

Asia Times: Wall Street advances while gold passes 2,000 as the greenback reverses Tuesday’s gains

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  • Dollar
  • Gold
  • Yen
  • Pound
  • Stocks
  • Oil
  • AUD
  • RBA

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Market Recap: Wall Street advanced while gold passes 2,000 as the greenback reverses Tuesday’s gains

Stocks on Wall Street come off another day of gains likely driven by hopes for the stimulus bill to pass Congress and as new Covid-19 cases continue to decelerate in the US. Market sentiment was probably lifted after Senate Democratic leader Chuck Schumer signalled that there was progress in the virus relief negotiations among lawmakers. But a final agreement on details such as the extension of the unemployment benefits enhancement still looks to be a distance away. While US Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi both were targeting the end of this week to reach an agreement for the fiscal stimulus bill, the earliest timeframe for the legislation to be drafted and passed would be next week assuming that negotiations wrap up by the end of the week as expected. This means that the enhanced employment benefits would lapse for a period of about two weeks, which will likely be reflected in the jobless benefit claims dataset in the coming weeks and possibly add to the mounting pressure on the labour market in the US.

Among S&P500 sectors, energy stocks drove gains on Wednesday, likely boosted by the climb in crude oil prices. Healthcare and financials lagged, while gains in the tech sector was mostly curbed by a dip in Microsoft's stock following concerns that its bid for social media app TikTok may draw more political risk to the company.

In company news, Disney's stock rose 4.28% in afterhours trading after beating estimates in its latest quarterly earnings and pushing the release of its film, "Mulan", to its Disney+ streaming service. For the quarter ended June 27th, the company managed to beat estimates of a loss of 63 cents a share and instead earn 8 cents a share thanks to in part to deferred payments for its sports programming during the Covid-19 shutdown. Its newest Disney+ streaming service ended the quarter with 57.5 million customers, missing estimates but has since grown to 60.5 million. The shift of "Mulan" to its Disney+ streaming service likely encouraged investors that there may be a greater jump in the streaming service's subscriber count than before and that its pay-per-view model for the film may apply to more upcoming blockbusters as well, which should help offset losses in its other segments. The shift for the company towards a greater emphasis into a direct-to-consumer model also helped with its outlook, as its large library of content is likely boosting the company's potential in competing with rival and first mover Netflix.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.62% +164.07 26,828.47
S&P500 +0.36% +11.90 3,306.51
Nasdaq +0.35% +38.37 10,941.17
*Source: Bloomberg

In the foreign exchange market, all G10 currencies advanced against the dollar on Tuesday with the exception of sterling, likely as risk aversion reversed following hopes for additional stimulus in the US. Sterling lagged against the greenback possibly as traders rebalance their portfolios away from the currency ahead of the Bank of England's decision on monetary policy tomorrow. While it seems that no change is expected from the central bank, investors will be focused on policymakers' tone for the direction of monetary policy for the meeting in November.

The Australian dollar fell against the dollar in the hour after the Reserve Bank of Australia (RBA) kept monetary policy on hold and revised its outlook for the economy downwards. The RBA kept it cash rate unchanged along with its yield target for three-year Australian Government Securities. The central bank also reiterated its commitment to support the economy amidst the pressure resulting from the Covid-19 pandemic, which likely helped boost sentiment for the Australian economy. There was a downward revision to unemployment and inflation expectations from the bank due to the resurgence of Covid-19 cases in the state of Victoria, although this was likely mostly anticipated by the market. Unemployment rate is now expected to rise to around 10% in 2020, before declining gradually to around 7% in 2021. However, the Aussie reversed losses to rise and become one of the top performers against the greenback during the US trading session, highlighting that easing risk aversion remained the key driver for the currency.

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Gold spikes past 2,000 thanks to the decline in dollar and rise in demand for safe haven assets. Gold closed the day at 2,019.21 and continued to rise on Wednesday morning. The Japanese yen rose against the dollar but weakened against the euro, suggesting that the two-day correction in favour of the dollar may have come to an end. US Treasuries gained across the board, with 10-year and 30-year treasuries surging on Tuesday. Benchmark 10-year yields ended the day 4.7bps lower at 0.51%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +2.14% +42.23 2,019.21
Silver +7.02% +1.71 26.01
USD/JPY -0.22% -0.23 105.72
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.2bps 0.11%
10-Year -4.7bps 0.51%
30-Year -4.6bps 1.19%
*Source: Bloomberg

Oil futures jumped on Tuesday following expectations for a decline in US crude oil stockpiles and an explosion in Lebanon's capital city, Beirut. Concerns of instability in the region fuelled gains in oil prices despite little additional information on the explosion at the time. American Petroleum Institute's weekly US crude oil stockpiles signalling that inventories in the US declined last week added to gains in oil prices as well and will now add to expectations for the official weekly report releasing later today to show the same as well. BP become the latest company in the oil industry to display signs of the downward pressure that the pandemic has had on oil companies. The company cut its dividend for the first time in a decade and signalled an acceleration in its goal to diversify more towards greener energy as its oil business faces the negative impact from the pandemic.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +0.63% +0.28 44.43
WTI +1.68% +0.69 41.70
*Source: Bloomberg

Stocks in Asia were mixed but was more tilted towards the downside as concerns grow for the stimulus bill in the US. While a stimulus bill is expected, there is likely still some concern about the negative impact that the current delay will already have on the global economy. In addition, while Mnuchin and Pelosi signalled an alignment in goals to finish negotiations by the end of the week, there are other lawmakers who are not as optimistic for a deal by this week, suggesting that there may be a greater divide on the relief bill than expected. The Nikkei and ASX200 were both trading lower in the earlier hours of Wednesday's trading session while the KOSPI managed to eke out some gains. Futures tracking major indices in the US were trading lower on Wednesday morning as well as of 9.14am (GMT +8).

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.73% -163.08 22,408.83 9:07:50 AM
KOSPI +0.71% +16.34 2,296.31 9:27:50 AM
ASX200 -0.94% -56.25 5,981.30 9:27:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.08% -22.00 26,695.00 9:17:47 AM
US Futures -0.13% -4.25 3,295.75 9:17:51 AM
Nasdaq Futures -0.18% -20.25 11,065.75 9:17:51 AM
*Source: Bloomberg

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

  • China Jul Services/Composite PMI (Caixin) (9.45am)
  • US Jul Private Employment Change (ADP) (8.15pm)
  • US Jul Non-Manufacturing PMI (ISM) (10pm)

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

  • Moderna Inc (8pm)
  • Honda Motor (2pm)
  • Toyota Motor (11pm)
  • Square Inc (5am +1)