Tuesday, August 11, 2020

Asia Times: Risk aversion fades thanks to temporary stimulus measures from Trump and hopes for an agreement on stimulus measures

Tags
  • China
  • Dollar
  • Gold
  • Yen
  • Stocks
  • Oil

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Market Recap: Risk aversion fades thanks to temporary stimulus measures from Trump and hopes for an agreement on stimulus measures

Tech and tech-related stocks drags down the tech-heavy S&P500 as investors rotate into underperforming sectors. Major indices were mixed on Monday, but performance over the broad market was skewed towards value stocks rather than growth stocks, signalling that investors were taking profits from tech and tech-related sectors and rebalancing their portfolios towards sectors that were badly impacted by the pandemic. The shift comes as investors remain hopeful on additional fiscal stimulus measures from the US, which looks more distant than before as US lawmakers return home for an August recess with plans to only return if an agreement is reached. While US President Donald Trump's signed executive orders to partially restore some previous stimulus measures helped support optimism in the financial market, investors are still likely waiting on US lawmakers for the actual legislation before a larger shift towards cyclical sectors.

Energy and industrial sector stocks dominated gains in the S&P500 while communication services, health care and tech shares lagged the index. Oil producers and airlines helped boost the S&P500, a signal of a rotation of profits towards shares in sectors that suffer the most during the pandemic. Shares of Macau casino and resort operators were among the top performers of the S&P500 as well, after China announced that it would allow mainland tourists to visit Macau for the first time since January.

Indexes Daily Change (%) Net Change Closing Price
Dow +1.30% +357.96 27,791.44
S&P500 +0.27% +9.19 3,360.47
Nasdaq -0.39% -42.62 10,968.36
*Source: Bloomberg

The basket of G10 currencies were mixed on Monday, but the greenback's overall performance was more skewed towards the upside. The Canadian dollar led gains in the basket of G10 currencies, boosted by the dollar's performance and an uptick in crude oil prices. The dollar's 0.16% gain can be explained by a likely natural correction in demand for the currency after five weeks of net weekly losses, as well as a possible return to favour as a safe haven currency due to uncertainty on US lawmakers' decision on the upcoming stimulus package.

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Safe haven assets were mostly lower on Monday as investors maintain their cautious optimism for a global economic recovery. Gold retreated for the second day in a row. The Japanese yen fell against the dollar but gained against the euro, suggesting that while risk aversion was still present, it remains subdued. US Treasuries fell across the board, pushing benchmark 10-year yields down 1.1bps to 0.58%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.40% -8.21 2,027.34
Silver +2.93% +0.83 29.13
USD/JPY +0.04% +0.04 105.96
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.2bps 0.13%
10-Year +1.1bps 0.58%
30-Year +2.0bps 1.25%
*Source: Bloomberg

Crude oil futures gained on Monday, lifted by Trump's reinforcement of previous stimulus measures and hopes that US lawmakers will reach an agreement on the upcoming stimulus bill soon. The decelerating pace of new Covid-19 infections in the US was also a likely driver for crude oil prices as traders expect a faster recovery with more people starting to return to work. While the both active WTI and Brent crude oil future contracts are trading at the top of their range since the onset of the pandemic, it is still unlikely that we will see as large a jump for prices as during the month of May and June. This is due to the inflow of oil production from OPEC+ members starting this month, which put some downward pressure on crude oil prices. Furthermore, energy demand remains uncertain as possible spikes in Covid-19 infections suggest that energy demand is more likely to experience an imbalanced recovery in upcoming months, which may only result in limited upside.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +1.33% +0.59 44.99
WTI +1.75% +0.72 41.94
*Source: Bloomberg

Shares in Asia were trading higher, further cementing investors' shift towards riskier assets. The Nikkei, KOSPI and ASX200 were all trading higher in the early hours of Tuesday's trading session. Futures tracking major indices in the US were also trading positive as of 8.37am (GMT +8), signalling that selloffs in the tech sector may ease while rotations into riskier sectors continue at a slower pace, which should result in a net positive outcome for major indices in the US.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +0.91% +205.19 22,535.13 8:27:50 AM
KOSPI +0.57% +13.61 2,399.99 8:47:50 AM
ASX200 +0.62% +37.90 6,148.10 8:47:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.09% +24.00 27,703.00 8:37:52 AM
US Futures +0.03% +0.75 3,353.75 8:37:52 AM
Nasdaq Futures +0.08% +9.25 11,081.25 8:37:47 AM
*Source: Bloomberg

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

  • UK Jun Unemployment Rate (ILO) (2pm)
  • UK Jul Claimant Count Change (2pm)
  • Germany Aug Current Situation/Expectations Survey (ZEW) (5pm)

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

  • SoftBank (2pm)
  • Cathay Pacific
  • Tencent Holdings (8pm)