Tuesday, August 18, 2020

Asia Times: Nvidia’s shares surge to new highs following target price upgrades while investors shrug off US-China tension concerns

Tags
  • Dollar
  • Gold
  • Yen
  • Stocks
  • Oil

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Market Recap: Nvidia’s shares surge to new highs following target price upgrades while investors shrug off US-China tension concerns

Stocks in the US mostly climbed higher on Monday on the back of another day of gains in the tech sector. Investors mostly ignored another escalation in US-China tensions after the US Commerce Department announced additional restrictions on Huawei Technologies on Monday morning in the US. The current restrictions will now include 38 of Huawei’s affiliates in 21 countries to the US' economic blacklist, in addition to the prior restrictions that were announced in May. Shares of Alibaba faced little downside during US trading as well, possibly thanks to news last week that its shares listed on the Hong Kong Stock Exchange were set to be added to the Hang Seng Index, and after China’s central bank announced that it would inject additional liquidity into the economy. Little movement resulting from escalation in US-China tensions suggests that market participants are more focused on economic data and the upcoming November presidential elections. On the elections front, reports suggested that there were concerns on presidential candidate Joe Biden's polling results, as largely outperforming US President Donald Trump in pre-election polls may deter some Americans from voting to avoid health risks due to the perception of Biden's higher likelihood of winning the elections.

Indexes Daily Change (%) Net Change Closing Price
Dow -0.31% -86.11 27,844.91
S&P500 +0.27% +9.14 3,381.99
Nasdaq +1.00% +110.43 11,129.73
*Source: Bloomberg

Nvidia's shares drove the tech rally on Monday, surging 6.68% after a number of analysts upgrades their target price for the stock. The price target upgrades come just before the company's quarterly earnings this week, and ahead of its much-anticipated launch of its new Ampere line of graphic processor units expected at the end of August or early September. Comments from analysts imply that the company is likely to benefit from lockdown restrictions which may potentially drive growth in a number of its segments, including its products for gaming (evident from higher demand for games and gaming desktops) and data centres (driven from remote working environments and demand for AI processing).

The S&P500 closed a touch lower than its record high closing in February, but flirted with that level during intraday trading. Consumer discretionary stocks led gains among S&P500 sectors, followed by the real estate and technology sectors. Gains in the consumer discretionary sector were led by shares of General Motors soaring more than 7% after an analyst in Deutsche speculated that the automaker may spin off its electric vehicle unit, although there was no official statement about the possibility. Financials and energy sector stocks suffered the most during the day, evidently putting pressure on the Dow to close lower on Monday. The Nasdaq Composite index closed at a new record high of 11,129.73 as a result of the tech rally.

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The dollar fell against every G10 currency on Monday, suffering a strong decline in the hours following a disappointing reading in the Empire State manufacturing index. The Empire manufacturing index dived to 3.7 in August from 17.2 in the prior month, well below economists' forecasts of 15.0. The disappointing data continued to support investors' thoughts that the economic recovery in the US was continuing to slowdown, possibly at a faster rate when compared to other developed countries. The data comes on the heels of fading hopes for stimulus measures that US lawmakers continue to show no sign of agreement on. While the dollar continues to fall into a downward spiral it has yet to retest the lows that it hit earlier this month and at the end of July of around 92.50.

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Safe haven assets mostly rose higher on Monday, possibly due to increased risk aversion regarding US-China relations and an overheated stock market. Gold rose higher to rise back towards 2,000's level. The Japanese yen gained against both the dollar and euro, despite reports that raised concerns on Japanese Prime Minister Shinzo Abe's health. The Japanese leader spent a number of hours at a hospital in Tokyo, prompting speculation on Abe's health. No official statement from Abe was made. But while government officials sent mixed messages on his condition, an aide commented that the visit was only a routine check-up. US Treasuries were mixed with a skew towards the upside for longer-term treasuries. Benchmark 10-year yields was 2.1bps lower as a result at 0.69%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +2.07% +40.18 1,985.30
Silver +3.93% +1.04 27.49
USD/JPY -0.56% -0.60 106.00
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.6bps 0.15%
10-Year -2.1bps 0.69%
30-Year -1.3bps 1.43%
*Source: Bloomberg

Oil futures rose on Monday as well, likely on increased volatility due to the upcoming OPEC+ Joint Ministerial Monitoring Committee (JMMC) this week. Gains in the oil market may have been fuelled by speculation on a sharp recovery in the global housing market in a low interest rate environment. The housing index by the National Association of Home Builders (NAHB) helped support this sentiment, jumping to 78 in August from 72 in July and above economists' estimates of 74. But in the longer-term, demand for new homes is likely to face some headwinds from high levels of unemployment, delayed stimulus measures and the ongoing surge in lumber prices. Additional liquidity injection by China's People's Bank of China (PBoC) last Friday likely contributed to rising oil prices as well. The key for this week's OPEC+ meeting will probably be on compliance as well its review on energy demand, which should mostly be a reiteration of statements from its last meeting with some additional optimism due to higher levels of compliance and stable crude oil prices.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +1.27% +0.57 45.37
WTI +2.09% +0.88 42.89
*Source: Bloomberg

Stocks in Asia were mostly higher on Tuesday morning, tracking gains in the US. The Nikkei was trading slightly lower, likely thanks to the strengthening yen and reports on Abe's health that may put some concern on investors. Futures tracking major indices in the US were trading higher as of 8.59am (GMT +8) as well.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.11% -24.84 23,071.91 8:49:20 AM
KOSPI +0.11% +2.71 2,410.20 9:09:20 AM
ASX200 +0.34% +20.82 6,097.00 9:09:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.15% +43.00 27,818.00 8:59:15 AM
US Futures +0.15% +5.00 3,384.75 8:59:20 AM
Nasdaq Futures +0.13% +15.00 11,301.75 8:59:19 AM
*Source: Bloomberg

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

  • RBA Meeting Minutes (9.30am)
  • US Jul Building Permits (8.30pm)
  • US Jul Housing Starts (8.30pm)

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

  • Walmart (7pm)
  • Target (8pm)
  • Home Depot (9pm)