Friday, August 7, 2020

Asia Times: Cautious optimism pushes stocks higher as unemployment benefit claims in the US dips to lowest levels since March

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  • Dollar
  • Gold
  • Yen
  • Pound
  • Stocks
  • NonFarm Payrolls
  • Oil

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Market Recap: Cautious optimism pushes stocks higher as unemployment benefit claims in the US dips to lowest levels since March

US equities advanced for the fifth trading session in a row on Thursday, with gains led by tech and tech related shares as stimulus hopes and labour market data remain the key focus for investors. On the stimulus front, US lawmakers continued to make conflicting comments on the progress of negotiations. House Speaker Nancy Pelosi said on Thursday morning that while there was positive progress on talks, both sides (Democrats and Republicans) remain split on major issues surrounding the upcoming stimulus bill. Comments from Senate Majority Leader Mitch McConnell was also similar in tone to that of Pelosi. While US President Donald Trump said that he is read yet sign orders to extend the enhanced unemployment benefits that were part of the CARES Act, it is unclear whether he has the authority to execute those orders without approval from Congress.

Jobless benefit claims surprisingly dropped to its lowest level since March for both initial and continuing claims. Americans filing for first-time benefits fell to 1.186 million last week from 1.435 million the previous week, much lower than expectations for 1.4 million, while continuing claims dipped to 16.107 million for the week ended July 24th. The data suggests that while there was an earlier spike in unemployment in the middle of July likely due to the resurgence in Covid-19 cases in multiple states, hiring has started to pick back up while the pace of layoffs has started to slow. The dataset represents the period just before the enhanced unemployment benefits ended on July 31st, which may be a signal that workers were more incentivised to find jobs before the expiration of the benefits to better supplement their income. Focus will now be on the upcoming employment report from the US Bureau of Labor Statistics, in which economists expect a 1.5 million jump in NonFarm payrolls for July. The headline figure looks more likely to undershoot expectations however, since the dataset will represent the period that saw the reintroduction of several lockdown restrictions in states such as California and Texas, as well as a spike in jobless benefit claims.

Sector data suggests that investors were cautiously optimistic of the upcoming stimulus measures and the economic recovery in the US. Energy and health care stocks lagged in the S&P500 while communication services and tech stocks led gains. Facebook led gains in the communication services, as its new Reels service, which rivals TikTok, helps to boost its outlook for better adoption rates as TikTok continues to face more uncertainty on its future in the US. Airline industry stocks were also among the top gainers on Thursday in the S&P500, signalling that investors were still more upbeat on the industry's outlook as expectations for aid measures for the industry mount.

In company news, Uber reported a 24% decline in revenue at its latest quarterly earnings call. More staggering was that the number of people using the company's platform fell 44% to 55 million customers, much lower than analysts’ expectations for a decline of 7%. It's ride hailing segment continues to face headwinds amid the pandemic while revenue from its food delivery service managed to pass that of its ride hailing revenue for the first time. Cost cutting looks likely to remain a key strategy for the company moving forward, as it narrows its focus to more developed markets. The company maintained its outlook for its goal of becoming profitable by the end of next year, a silver lining for the company's investors. Little comments were made on the issue that the company faces on a possible worker reclassification of its driver in California, which would potentially drive up its costs and consequently, its ride hailing prices. Uber's shares fell 2.74% in afterhours trading as a result.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.68% +185.46 27,386.98
S&P500 +0.64% +21.39 3,349.16
Nasdaq +1.00% +109.67 11,108.07
*Source: Bloomberg

G10 currencies were mostly mixed on Thursday with conflicting sentiment surrounding the upcoming stimulus measures in the US. The dollar fell against most major currencies, including the yen, euro and sterling. The Australian and New Zealand dollar led gains, likely thank to the better-than-expected benefit claims data in US and hopes for stimulus driving optimism in financial markets.

Sterling closed higher against the greenback after the Bank of England (BoE) said that it “does not intend to tighten monetary policy until there is clear evidence that significant process is being made in eliminating spare capacity and achieving the 2% inflation target sustainably”. As expected, the Monetary Policy Committee (MPC) voted unanimously to keep rates on hold at 0.1% and asset purchase target at 745 billion pounds. The central bank also revised its forecast for the short-term and medium-term lower as it now expects less of a V-shaped recovery than before. Sterling likely gained as a result of the BoE's outlook being rosier than expected in the short-term with little signals for additional stimulus measures later this year with unemployment expected to rise and inflation expected to decline in the coming months. As for negative interest rates, the BoE reiterated that it does not see a need for negative rates at the moment, but opened the door to a possible cut below zero in the future, which would likely be after the pandemic crisis ends.

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Safe haven assets were mostly higher on Thursday, highlighting the cautious optimism among investors in the financial market. Gold rose higher and passed 2,050's level to a fresh record high of 2,063.54. the Japanese yen strengthened slightly against the dollar but weakened against the euro. US Treasuries rose across the board, pulling benchmark 10-year yields down 1.1bps to 0.54%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +1.25% +25.42 2,063.54
Silver +7.28% +1.96 28.92
USD/JPY -0.05% -0.05 105.55
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.2bps 0.12%
10-Year -1.1bps 0.54%
30-Year -2.4bps 1.20%
*Source: Bloomberg

Oil inched lower on Thursday, likely as traders await the July jobs report in the US later today. Demand worries also likely added to the pressure on crude oil prices, although stimulus hopes in the US likely helped to curb losses on the day. The outlook for oil remains little changed, demand headwinds is likely to continue to be sustained moving forward as the sharp recovery has likely come to an end, with a slow and gradual recovery in energy demand looking more likely in the current environment. Supply concerns will likely also prevent crude oil prices from surging again in the short-term since oil market supply is looking to be much less volatile now. Several OPEC+ members compensating for producing above quotas earlier this year is likely to offset some of the bloc's taper in production limits as well, which should help to curb any downside in oil regarding the supply side.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -0.18% -0.08 45.09
WTI -0.57% -0.24 41.95
*Source: Bloomberg

In Asia, stocks were trading mixed on Friday morning and is likely to continue for the session as some investors take profit ahead of the jobs report in the US later today. The Nikkei and ASX200 were trading lower while the KOSPI was higher in the earlier hours of the trading day. Futures tracking major indices in the US were all red as of 9.03am (GMT +8) this morning, which was a likely normalisation of yesterday's gains.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.32% -72.37 22,345.78 8:53:45 AM
KOSPI +0.30% +7.01 2,349.62 9:13:40 AM
ASX200 -0.48% -28.79 6,013.40 9:13:44 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.16% -43.00 27,242.00 9:03:45 AM
US Futures -0.13% -4.25 3,340.00 9:03:46 AM
Nasdaq Futures -0.05% -5.75 11,255.50 9:03:38 AM
*Source: Bloomberg

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

  • China Jul Trade Balance (10am)
  • Germany Jul Industrial Production (2pm)
  • US Jul Change in NonFarm Payrolls (8.30pm)
  • Canada Jul Unemployment Rate (8.30pm)