Wednesday, August 12, 2020

Asia Times: US Stock reverse gains late in Tuesday’s session as investors’ hopes for stimulus gets dampened by lawmakers’ stalemate

Tags
  • Dollar
  • Gold
  • Yen
  • Stocks
  • Oil
  • NZD
  • Reserve Bank of New Zealand

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Market Recap: US Stock reverse gains late in Tuesday’s session as investors’ hopes for stimulus gets dampened by lawmakers’ stalemate

Stocks in the US started the day in the green but reversed gains towards the end of the session as sentiment for stimulus measures in the US take a turn for the worst. The S&P500 was close to passing its February high to a fresh record during the trading session in the US before the reversal in cyclical and value stocks shaved off gains made earlier in the day. The selloff was fuelled by comments from Senate Majority Leader Mitch McConnell to Fox News towards the end of the trading session, which suggested that talks between US lawmakers were at a stalemate. An agreement on the next fiscal stimulus bill is now looking to be delayed indefinitely, with signs pointing possibly to September as the earliest possible date for a new stimulus bill as Democrats and Republicans take a pause on negotiations. US President Donald Trump's signed executive orders to introduce temporary stimulus measures, while likely to provide some support for the US economy, is also a strong signal that both parties are not close to reaching an agreement since signing the executive orders meant that the White House was choosing its best alternative to the stimulus bill instead. The selloff after McConnell's comments shows the large dependency of stock prices (and consequently investor sentiment) on stimulus measures, which implicitly suggests that the S&P500 index is no longer representative of the current economic climate in the US, but rather a reflection of investors speculation on the country's economic outlook.

In sector news, big tech weighed largely on major indices for the third day in a row while value continues to dominate. Apple, Microsoft and Amazon where among tech sector shares that weighed on the Dow. AMD's shares fell 6.52% in what appears to be investors and speculators shaving off profits on the stock after a strong Q2 performance. Among S&P500 sectors, financials and industrials led gains, while utilities and real estate lagged the index. Technology hardware was the biggest loser among the S&P500 industries, signalling a continued shift away from stocks that are considered to be more defensive against an economic environment amid the pandemic.

Indexes Daily Change (%) Net Change Closing Price
Dow -0.38% -104.53 27,686.91
S&P500 -0.80% -26.78 3,333.69
Nasdaq -1.69% -185.54 10,782.82
*Source: Bloomberg

Risk aversion wasn't present in the foreign currency market on Tuesday. The basket of G10 currencies were mixed against the dollar, although the greenback still managed to eke out net gains on the day. Instead, risk appetite was seen growing in the forex market, with oil-related currencies leading gains among major currencies.

The Reserve Bank of New Zealand (RBNZ) looks set to keep its official cash rate on hold today at 10am (GMT +8). It looks likely that the central bank will keep rates unchanged, with a possible expansion to its Large Scale Asset Purchase (LSAP) programme. Headline economic data for Q1 and Q2 2020 has been better-than-expected, which may deter policymakers from expanding the LSAP programme at today's meeting. But underlying fundamental data continues to show that the country's economy is likely to experience headwinds moving forward, as the government's Wage Subsidy Scheme expires on September 1st and the global economic recovery starts to stall. The New Zealand dollar may as a result have room for some downside against the dollar, which seems likely when coupled with the dollar's upward momentum looking likely to continue in the short-term.

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Safe haven assets dipped largely on Tuesday, possibly due to growing risk appetite and a general retreat away from financial markets. Gold dived more than 5% to close well below US$2,000. The Japanese yen weakened against both the greenback and euro. US Treasuries dipped across the board, with benchmark 10-year yields surging 6.6bps to 0.64%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -5.69% -115.45 1,911.89
Silver -14.89% -4.34 24.79
USD/JPY +0.50% +0.53 106.49
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +1.8bps 0.15%
10-Year +6.6bps 0.64%
30-Year +7.5bps 1.33%
*Source: Bloomberg

Oil futures closed Tuesday's trading session lower after reversing an initial gain on dashed stimulus hopes. Traders remain optimistic on crude oil's recovery as WTI futures trade close to its 200-day moving average. Decelerating new cases of Covid-19 infections in the US looks to be the most likely driver of crude oil prices, although the optimism may be misplaced as demand continues to look unlikely to recover back to pre-Covid-19 levels by the end of the year with air travel still facing strong headwinds. Russian President Vladimir Putin's announcement granting regulatory approval for the world's first vaccine for the novel coronavirus may have helped drive sentiment as well, although more details reveal that the vaccine is still in trials, which may only be completed in January 2021.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -1.09% -0.49 44.50
WTI -0.79% -0.33 41.61
*Source: Bloomberg

Stocks in Asia were trading lower on Wednesday, tracking losses in the US as investors outlook was dampened by stalled stimulus talks in the US. The Nikkei was trading flat in the early hours of Wednesday's trading session, likely supported by the weaker Japanese yen. The KOSPI and ASX200 were both trading lower as of 9.04am (GMT +8). Futures tracking major indices in the US were each trading higher, led by Nasdaq future contracts as of 8.54am (GMT +8).

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +0.00% +1.10 22,751.34 8:44:10 AM
KOSPI -0.62% -14.99 2,403.68 9:04:10 AM
ASX200 -0.59% -36.05 6,102.60 9:03:44 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.12% +31.00 27,645.00 8:54:12 AM
US Futures +0.04% +1.25 3,331.25 8:54:13 AM
Nasdaq Futures +0.17% +18.75 10,897.25 8:54:14 AM
*Source: Bloomberg

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

  • RBNZ Monetary Policy Decision/Statement (10am)
  • RBNZ Governor Orr's Post-Meeting Press Conference (11am)
  • UK Jun Industrial/Manufacturing Production (2pm)
  • UK Q2 GDP (P) (2pm)
  • US Jul Inflation Rate (Core CPI/CPI) (8.30pm)

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

  • Tencent Holdings (8pm)
  • Hyundai Motor