Wednesday, August 19, 2020

Asia Times: Amazon’s shares spikes 4% to drive the S&P500 to a new record high and end the shortest bear market in history

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  • Gold
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  • Pound
  • Stocks
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Market Recap: Amazon’s shares spikes 4% to drive the S&P500 to a new record high and end the shortest bear market in history

US equities mostly advanced on Tuesday, marking the end of the pandemic bear market as tech shares and Amazon pushes the S&P500 to close at a new record high. The S&P500 closed higher at 3,389.78 on Tuesday after suffering an initial dip near the start of the session, possibly due to some profit taking after the index hit an intraday high of 3,395.06. The Dow on the other hand, suffered its second day of losses, widening the gap between it and the S&P500 in terms of year-to-date gains. US-China tensions showed signs of another round of escalation after Bloomberg reported that the US State Department had told colleges and universities in the US that "it would be prudent" to divest from Chinese holdings in their portfolios in a letter seen by the media outlet. The news showed little impact on the stock market however.

Indexes Daily Change (%) Net Change Closing Price
Dow -0.24% -66.84 27,778.07
S&P500 +0.23% +7.79 3,389.78
Nasdaq +0.73% +81.11 11,210.84
*Source: Bloomberg

Tech and tech related shares supported gains in the S&P500 while consumer discretionary shares had the most impact in pushing the S&P500 to new highs. Among consumer discretionary shares, Amazon led gains for the day after its shares surged 4.09% on news that it plans to expand its tech hub in the US across six cities that would consequently add 3,500 jobs. Stocks in the energy and financials sectors lagged the most among S&P500 shares for the second day in a row, an indicator that investors may still be concerned regarding the progress on US stimulus talks, which may finally be showing some progress on Tuesday after the stock market in the US closed. House Speaker Nancy Pelosi suggested on Tuesday evening in the US that Democrats may be more willing to make concessions on their stimulus proposal to move forward with a deal with Republicans, after commenting at a playbook event that her party was willing to cut their bill in half. While her spokesman later clarified that she meant that she would meet Republicans halfway instead of cutting the Democrats' three trillion stimulus proposal into half, it does suggest that we may start to see negotiations resume with better progress than before.

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The dollar made its second day of losses on Tuesday and broke below the 92.50 support level to a new two-year low of 92.27 likely on the back of risk-off sentiment in regards to the S&P500 exiting its bear market. Stimulus hopes may have contributed as well, along with escalating US-China tensions, although the decline seems to be more related to momentum than the aforementioned factors. Better-than-expected housing data in the US confirming expectations that the US housing market is shifting into a rebound thanks to a low interest rate environment probably also contributed to the dollar’s decline as optimism rises. Housing starts in the US rose to 1.496 million (E: 1.245 million, P: 1.220 million) in July, while building permits rose 1.495 million (E: 1.326 million, P: 1.241 million). The longer-term concern for a robust recovery in the housing market may be limited by high levels of unemployment and rising lumber prices.

Sterling rose more than 1% against the dollar on Tuesday, touching levels only seen at the start of the year as the currency reverses close to all of its losses against the greenback over the year. While there were little fundamental drivers for sterling, the dollar was likely the main driver of gains behind the currency. The outperformance against other G10 currencies also suggest that gains may be on the back of higher demand, and momentum driven possibly by algorithmic trading.

The Reserve Bank of Australia's (RBA) meeting minutes signalled rising caution and possible pessimism from policymakers but had little lasting downside impact on the Australian dollar thanks to the greenback’s decline. The minutes for the RBA's August monetary policy meeting signalled that the central bank was exercising greater caution, and possibly pessimism to its outlook as it considers the restrictions set in Melbourne and its surrounding states due to the resurgence of Covid-19 cases. The meeting minutes also noted the high levels of uncertainty due to the imbalance in recovery across cities in the country (Western Australia is experiencing a quicker rebound thanks to rising commodity prices). The overall dovish tilt in the outlook for policy makers likely put pressure on the currency, but the dollar's decline outweighed its effects when the US traders entered the market on Tuesday.

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Cautious optimism extended into the safe haven asset market on Tuesday. Gold regained its footing above 2,000's level. The Japanese yen gained against both the dollar and the euro. US Treasuries rose across the board, pushing benchmark 10-year yields down lower by 1.9bps to 0.67%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.86% +17.14 2,002.44
Silver +0.67% +0.19 27.67
USD/JPY -0.56% -0.59 105.41
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.8bps 0.14%
10-Year -1.9bps 0.67%
30-Year -3.9bps 1.40%
*Source: Bloomberg

Oil futures traded muted on Tuesday ahead of the weekly US crude oil stockpiles report by the Energy Information Administration (EIA) and OPEC+'s meeting this week. Oil reversed gains on Tuesday after the American Petroleum Institute reported conflicting data on US crude oil inventories. While the industry-funded report showed inventories falling in the US, it also signalled that gasoline demand is experiencing more weakness as gas stockpiles rose close to 5 million barrels last week. Traders will then likely to focus on the official report from the EIA later today, while also keeping their eye on OPEC+'s ministerial meeting that is originally scheduled for today. Energy demand is likely to be the driver for crude oil futures moving forward, which should mean that a slow and gradual pace of recovery should be seen in crude oil prices over the medium-and-long-term. But with oil recently trading at a tight range, we may see a large swing this week as a result of a number of potential catalysts.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +0.20% +0.09 45.46
WTI 0.00% 0.00 42.89
*Source: Bloomberg

Stocks were trading mixed in Asia on Wednesday morning, likely as a result of a contrast in sentiment thanks to the overnight news on stimulus measures in the US and escalating US-China tensions. The Nikkei looks set to drop for the second day in a row as a result of a stronger yen. The KOSPI and ASX200 were trading higher in the earlier hours of Wednesday's trading session in contrast. Futures tracking major indices in the US were trading higher but closer to flat as of 9.09am (GMT +8) on Wednesday, indicative of mixed investors sentiment as well.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.24% -55.83 22,995.25 8:59:30 AM
KOSPI +0.76% +18.07 2,366.31 9:19:30 AM
ASX200 +0.69% +42.24 6,165.60 9:19:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.09% +24.00 27,741.00 9:09:32 AM
US Futures +0.08% +2.75 3,389.75 9:09:34 AM
Nasdaq Futures +0.05% +6.00 11,415.25 9:09:34 AM
*Source: Bloomberg

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

  • UK Jul Inflation Rate (CPI/RPI) (2pm)
  • Eurozone Jul Inflation Rate (Core CPI/CPI) (F) (5pm)
  • US Aug 14th Mortgage Applications (MBA) (7pm)
  • US Aug 14th Crude Oil Stocks Change (EIA) (10.30pm)

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

  • NVIDIA Corp (4.20am +1)