Friday, August 14, 2020

Asia Times: S&P500 pare back gains after briefly making new highs on concerns for stimulus and US-China relations

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  • Dollar
  • Gold
  • Yen
  • Pound
  • Stocks
  • Oil

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Market Recap: S&P500 pare back gains after briefly making new highs on concerns for stimulus and US-China relations

Stocks in the US dipped towards the end of Thursday's trading session to end the day mixed. Stock prices were initially boosted by a dip in both initial and continuing jobless claims benefits. Initial unemployment benefit claims last week fell below 1 million for the first time since the start of the pandemic to 963,000, much lower than economists' forecasts of 1.1 million. While the better-than-expected figures likely translated into some optimism in the stock market, it quickly faded as the session progressed as investors started to price in the impact that the expiration of the enhanced unemployment benefits that amounted to US$600 a week had on the dataset. Stalled stimulus negotiations likely also continued to weighed on investors' minds as trading was much more muted in comparison to the past trading session.

Indexes Daily Change (%) Net Change Closing Price
Dow -0.29% -80.12 27,896.72
S&P500 -0.20% -6.92 3,373.43
Nasdaq +0.27% +30.26 11,042.50
*Source: Bloomberg

Most S&P500 sectors fell on Thursday, with energy sector stocks lagging the most in the index thanks to falling crude oil prices. Tech and tech-related shares advanced with some push from Apple's shares, helping to buoy the index from further losses. Apple's stock advanced 1.77% on Thursday after Bloomberg reported that the iPhone maker is preparing to launch a series of services bundles to allow customers to subscribe for a number of services depending on the tier chosen at a discounted monthly price. While the report cited people with knowledge of the effort with no official statement from the company, the strategy would make sense in a bid to gain more market share in a competitive market as it emulates bundles similar to companies such as Amazon with its Prime membership and Adobe's suite of applications. Bundled services is also likely to help grow the subscriber base for services that face lower demand, which could potentially help translate into better organic user base growth for those applications. The company is now trading with a market cap of about 1.967 trillion, just a touch away from a 2 trillion valuation.

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The dollar fell against major currencies on Thursday, but managed to claw back some of its losses before the end of the day on concerns for another escalation in US-China relations and stalling stimulus negotiations. The Dollar Index briefly fell below 93.00 before regaining momentum to end the day at 93.34. US White House Chief Economic Advisor Larry Kudlow's comments that negotiations between US lawmakers are at a stalemate and that China's influence must be "watched carefully" may likely have helped the dollar's upward momentum towards the end of the session after better-than-expected unemployment benefits data helped put downward pressure on the index.

Major currencies were mixed against the dollar on Thursday. The Australian and New Zealand dollar lagged the basket of G10 currencies, likely due to New Zealand's reintroduction of lockdown restrictions in Auckland as well as concerns surrounding US-China tensions. European currencies led gains on the day, possibly due to a continued rotation away from the dollar. Sterling gained against the dollar and may have more room to rise today after British Prime Minister Boris Johnson resumed easing of lockdown rules with theatres, casinos and beauty parlours allowed to reopen. A tougher stance on enforcing social distancing rules may also have an added impact on markets, as investors may become more bullish on the likelihood that the UK will be more able to sustain the current state of lockdown restrictions.

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Safe haven assets were mixed yet again, with gold maintaining its upward momentum. Gold advanced back above 1,950's level on Thursday. The Japanese yen weakened against both the greenback and the euro. US Treasuries fell across the board, with benchmark 10-year yields rising 4.6bps to 0.72%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +1.98% +37.88 1,953.71
Silver +7.81% +1.99 27.51
USD/JPY +0.02% +0.02 106.93
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.2bps 0.16%
10-Year +4.6bps 0.72%
30-Year +5.4bps 1.43%
*Source: Bloomberg

Oil futures reversed gains from Wednesday after demand outlook for the energy market looks likely to face pressure for the foreseeable future. The International Energy Agency's (IEA) reduced its demand estimates for almost every quarter to the end of next year, with air travel demand being the key component for the pressure on overall oil demand. The report also showed the extent of the damage in the industry, with air travel dipping two-thirds lower in July year-on-year, a month that is typically commands high demand due to the holiday season. With fundamentals skewing the outlook of oil prices in different directions, it looks probable that crude oil prices will continue to trade within a tight range with a skew towards the upside as the global economy recovers at a slow and gradual pace moving forward, instead of the sharp rebound that we saw at the start of the current quarter.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -1.03% -0.47 44.96
WTI -1.01% -0.43 42.24
*Source: Bloomberg

Asia looks set to trade mixed on Friday morning, as investors will likely take some profit ahead of the weekend while being cautious on geopolitical tensions and stimulus concerns. The Nikkei and ASX200 were trading higher in the early hours of Friday's trading day. The KOSPI fell more than 1% as of 9.05am (GMT +8), as the index looks poised to face its first decline after rising for nine straight sessions, a possible signal of profit taking and normalisation of gains. Futures tracking major indices in the US were each trading higher as of 8.55am (GMT +8). July's retail sales figure and August’s consumer sentiment index, two key datasets in the US, will be the focus for the day as investors look to the data for signs on an improvement in consumer spending. While retail sales last month should have continued to improve from June, it is likely that an improvement will only be a fraction of June's. The expiration of enhanced unemployment benefits may also have weighed on consumer spending, as consumers pare back on spending to hoard cash with expectations of reduced unemployment benefits.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +0.10% +22.56 23,272.17 8:45:15 AM
KOSPI -1.47% -35.32 2,402.21 9:05:10 AM
ASX200 +0.45% +27.50 6,118.50 9:05:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.09% +26.00 27,849.00 8:55:15 AM
US Futures +0.13% +4.25 3,372.00 8:55:14 AM
Nasdaq Futures +0.13% +14.25 11,189.50 8:55:15 AM
*Source: Bloomberg

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

  • China Jul Industrial Production (10am)
  • China Jul Retail Sales (10am)
  • Eurozone Q2 Employment Change (P) (5pm)
  • Eurozone Q2 GDP (P) (5pm)
  • US Jul Retail Sales (8.30pm)
  • US Aug Consumer Sentiment Survey (U. of Mich) (10pm)