Monday, August 10, 2020

Asia Times: Tech shares weigh on major indices while the dollar advances as investors take profits on Friday

Tags
  • Dollar
  • Gold
  • Yen
  • Stocks
  • Oil
  • AUD

08102020a

Market Recap: Tech shares weigh on major indices while the dollar advances as investors take profits on Friday

Stocks ended last Friday's trading session mixed as tensions between the US and China escalate while stimulus talks continue to stall. Concerns on US-China relations rose after the US announced that it would put sanctions on Hong Kong Chief Executive Carrie Lam, in addition to 10 other Chinese officials on Friday. The announced sanctions come on the heels of US Donald Trump's signing of executive orders to ban TikTok and WeChat in 45 days from Thursday night, which is likely to put pressure on a wide range of stakeholders, including Apple's business in China, WeChat and people who use the app to communicate between contacts in the US and China. China-based stocks listed in the US, including shares of Alibaba, ended the day sharply lower as a result.

White house officials signal little progress on stimulus talks while suggesting a possible follow through from Trump to restore some provisions that have expired from the last stimulus bill. Democrats and Republicans came out of the latest round of stimulus talks on Friday still far from agreement on a number of issues regarding the upcoming stimulus bill. US Treasury Steven Mnuchin said after the meeting that he instead will be asking Trump to take executive action on financial aid to help support the US economy. While investors were likely rattled on earlier signals that stimulus negotiations were stalling, Mnuchin's comments provided some boost to investors' optimism which was the likely catalyst for US equities to rise back into positive territory near the end of Friday's trading session.

In sector news, financial and utilities sector socks led gains in the S&P500 while tech and consumer discretionary sector stocks lagged the index. The performance in sector stocks suggests that profit taking may have been the key driver ahead of the weekend. Concerns that China may respond to the US' sanctions of its officials, and ban on TikTok and WeChat may have weighed on the sector as well.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.17% +46.50 27,433.48
S&P500 +0.06% +2.12 3,351.28
Nasdaq -0.87% -97.09 11,010.98
*Source: Bloomberg

Major indices around the world still had one of its better weekly performances last week. Hopes for stimulus and better-than-expected signals in the US labour market likely helped drive optimism and lift equities higher last week. The HSI lagged the most among global indices over the week retreating slightly by 0.26%, likely in part due to shares of Tencent, which dipped 5.04% on Friday following news of the ban on WeChat in the US.

Indexes Weekly Change (%) Net Change Closing Price
Dow +3.80% +1,005.16 27,433.48
S&P500 +2.45% +80.16 3,351.28
Nasdaq +2.47% +265.71 11,010.98
FTSE100 +2.28% +134.42 6,032.18
Dax +2.94% +361.52 12,674.88
Stoxx +2.47% +78.33 3,252.65
Nikkei +2.86% +619.94 22,329.94
CSI300 +0.27% +12.88 4,707.93
KOSPI +4.55% +102.30 2,351.67
ASX200 +1.30% +77.06 6,004.84
HSI -0.26% -63.73 24,531.62
STI +0.62% +15.69 2,545.51
*Source: Bloomberg

The dollar, Japanese yen and Swiss franc were the top performers in the G10 basket of currencies thanks to risk aversion regarding relations between the US and China. While risk aversion may have contributed to the gains in the greenback, a natural normalisation of prices resulting from profit taking in both the currency and equity markets may also have been another contributor as the greenback gained across all other major currencies. Labour market data from the US Bureau of Labor Statistics also contributed to the greenback's gains on Friday. NonFarm payrolls rose 1.763 million, beating economists' estimates for 1.480 million but was only a fraction of that in June which amounted to 4.791 million. Unemployment also fell below expectations to 10.9% for July (E: 11.0%, P: 12.3%). The better-than-expected employment data likely helped improve the outlook for US' consumer spending since expectations were for a slower recovery in the labour market as a result of the resurgence of Covid-19 cases in multiple states.

The New Zealand and Australian dollar fell the most in the basket of G10 currencies, as escalating tensions and dovish comments from the Reserve Bank of Australia (RBA) put downward pressure on the currencies. The RBA downgraded its economic forecasts for the Australian economy at the quarterly update of its economic outlook on Friday. The downgrades come as the spike in Covid-19 cases and eventual lockdowns in parts of the state of Victoria continue to put pressure on consumer confidence and economic activity. Projections now expect Victoria's latest containment measures to shave off around two percentage points from GDP in Q3. Core inflation is also expected to reach the target of 1.5% only in 2022. The statement from RBA Assistant Governor Luci Ellis, who oversees economic forecasting, as well as the quarterly update of the RBA's economic outlook reinforces that monetary policy is likely to hold for an extended period of time.

08102020b

Safe haven assets fell on across the board on Friday as well, suggests that increased risk aversion was one other several drivers for financial markets on Friday. Gold fell 1.36%, but still closed well above levels at the start of the week. The Japanese yen fell against the dollar but rose against the euro. US Treasuries fell across the board, pushing benchmark 10-year yields 2.8bps higher to 0.56%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -1.36% -27.99 2,035.55
Silver -2.15% -0.62 28.30
USD/JPY +0.35% +0.37 105.92
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +1.4bps 0.13%
10-Year +2.8bps 0.56%
30-Year +3.6bps 1.23%
*Source: Bloomberg

Oil futures fell on Friday as US-China tensions put some weight on crude oil benchmarks. China's crude oil imports (A: 51.29 million tons, P: 53.18 million tons) falling in July likely also added to the downward pressure on crude oil prices, as ports in China became congested with wait times continuing to rise as they struggle to unload crude oil imports earlier in the year. Both Brent and WTI still managed to make weekly gains, after a strong performance earlier in the week thanks to optimism from investors on upcoming stimulus measures in the US and better-than-expected PMI data in multiple developed countries. The outlook for oil is likely to still remain as before, i.e. a slow and gradual recovery with likelihood for downside pressure in the short-term as a result of supply concerns.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -1.53% -0.69 44.40
WTI -1.74% -0.73 41.22
*Source: Bloomberg

In Asia, stocks were trading in the green on Monday morning after Trump signed executive orders to provide further Covid-19 economic relief over the weekend as talks between US lawmakers break down. Both the KOSPI and ASX200 were trading higher in the first hour of Monday’s trading day while futures tracking US major indices were lower as of 8.29am (GMT +8) on Monday. Mixed trading in Asia’s session suggests that while Trump’s executive orders, which includes expanded unemployment benefits of US$400 a week (of which states will to be required to provide US$100), investors are concerned whether US lawmakers will be able to agree on a more robust stimulus bill to help businesses as well. The Tokyo and Singapore stock exchanges will remain closed for a public holiday and only reopen on Tuesday.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei - - 22,329.94 -
KOSPI +0.67% +15.95 2,367.62 8:39:10 AM
ASX200 +0.66% +39.96 6,044.80 8:39:15 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.13% -36.00 27,297.00 8:29:02 AM
US Futures -0.08% -2.75 3,342.00 8:29:16 AM
Nasdaq Futures -0.16% -17.75 11,105.00 8:29:13 AM
*Source: Bloomberg

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

  • China Jul Inflation Rate (CPI) (9.30am)
  • Switzerland Jul Unemployment Rate (1.45pm)

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

  • Marriott International (8.30pm)
  • Royal Caribbean Cruises (10pm)