Friday, August 21, 2020

Asia Times: Tech shares’ rally support gains in the equities market while cyclical stocks suffer from an unexpected uptick in benefit claims

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  • Dollar
  • Gold
  • Yen
  • Euro
  • Stocks
  • Oil

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Market Recap: Tech shares’ rally support gains in the equities market while cyclical stocks suffer from an unexpected uptick in benefit claims

Stocks in the US rose on Thursday, driven higher by another rally in tech stocks in what appears to be another shift back towards more cautious optimism following worse-than-expected jobless benefit claims data affirming Fed policymakers' worries. Initial jobless claims experienced an uptick to 1.106 million for the week ended August 14th, missing economists' expectations for a decline to 0.920 million. There was a bright spot in continuing claims, which continued to fall below expectations to 14.844 million from 15.480 million for the week ended August 7th. Investors will now likely be focused on next week's data to see if the uptick was only a blip in the dataset or if it’s a potential signal from unemployment figures towards a second wave of layoffs.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.17% +46.85 27,739.73
S&P500 +0.32% +10.66 3,385.51
Nasdaq +1.06% +118.49 11,264.95
*Source: Bloomberg

Major indices were still able to advance with the support of non-cyclical stocks. The tech sector along with tech-related stocks led gains in the market, led by Big Tech companies each surging more than 2%. Notable performers among growth stocks were Apple, which closed 2.22% higher to exceed US$2 trillion in market capitalisation, and Tesla, that closed above US$2,000 per share for the first time after spiking up 6.56% on Thursday. Shares of both Uber and Lyft jumped 6.76% and 5.76% respectively on Thursday after an appeals court agreed to keep their current business model in place in California while they continue to challenge a judge's order to comply with a labour law that would require the companies to convert their drivers in the area to employees. The concession from the state courts likely decelerated worries that the companies will be forced to either hike prices of their ride hailing services in the area due to a large spike in costs, or ultimately shut operations in California. Cyclical stocks such as the energy sector led losses on the day, with the S&P500 energy sector sub index falling more than 2% on Thursday. The decline in energy sector stocks may also be attributed to concerns for the outlook of the industry as investors anticipate a shift towards more environmentally friendly policies from Democrat presidential candidate Joe Biden, who appears to be leading in pre-election polls by about eight percentage points according to FiveThirtyEight.com.

Alibaba, in similar fashion to Nvidia, become the latest company to have its shares dip despite beating earnings expectations. Shares of the ecommerce giant fell 1.01% on Thursday after reporting a 34% jump in sales in Q2 as Chinese spending returned back to pre-Covid-19 levels, beating expectations for both revenue and earnings. Ant Group's (Alibaba owns 33% of the financial company) profit surged almost six times to US$1.3 billion in the quarter ended March, and is likely to send expectations much higher for the company's prospects ahead of its IPO. Concerns regarding political risk for the company was the most prominent reason for the decline in the company's shares after CEO David Zhang told analysts that the uncertainties the company faced was not limited to the pandemic, but also growing tensions between US and China.

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In the forex space, the dollar suffered another day of decline, but less of an extent compared to before. The dollar was initially lifted by the worse-than-expected initial jobless claims data but reversed gains later in the trading session to end lower against most other major currencies. The New Zealand dollar was one of the exceptions, falling 0.37% against the greenback on Thursday as commodity-linked currencies were the laggards of the day.

The euro inched slightly higher against the dollar following the European Central Bank's (ECB) monetary policy minutes and ahead of the initial jobless claims dataset in the US. Uncertainty was the theme of the central bank's July meeting, with most policymakers agreeing that the impact on the economy still remains to be seen with an economic recovery looking likely to be uneven and partial. The cautious optimism, in addition to signals that September's meeting will be key for the central bank's reassessment of its monetary policy tools with additional data releases likely provided some support for the euro while also putting a ceiling to gains as it looks more unlikely that the ECB will be inclined to implement further stimulus measures in the coming months. There were also signs that ECB policymakers had opposing views on the use of its Pandemic Emergency Pandemic Program (PEPP), but it likely had an immaterial impact on the currency in comparison to other developments.

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Safe haven assets mostly gained on Thursday thanks to the shift towards risk aversion. Gold gained, curbing the losses it made on Wednesday. The Japanese yen gained against both the dollar and euro. US Treasuries mostly rose with the exception of two-year treasuries. Benchmark 10-year yields fell 2.9bps to 0.65% as a result.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.95% +18.28 1,947.26
Silver +2.05% +0.55 27.25
USD/JPY -0.30% -0.32 105.80
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.2bps 0.14%
10-Year -2.9bps 0.65%
30-Year -4.0bps 1.38%
*Source: Bloomberg

Oil suffered losses on Thursday after applications for unemployment benefits unexpectedly rose last week, fanning demand concerns in the crude oil market. WTI crude oil futures looks likely to continue trading at a tight range moving forward, between the 50-day and 200-day moving averages as catalysts for crude oil's recovery are mostly fading. Crude oil traders will likely be looking for more signs of a recovery in demand, possibly in either factory production (using distillate as a proxy) or consumer consumption (using gasoline as a proxy) before we see a breakout in prices. The current trend still affirms the outlook for the industry, i.e. a slow and gradual recovery with limited downside as it appears to be unlikely that we will see crude oil prices dip back below 36.00's level at this point in time. As for the correlation with jet fuel, air travel demand will probably not recover back to pre-Covid-19 levels in the near future, although spikes in domestic travel demand may be closely watched as consumers seek out vacations in the absence of international travel.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -1.04% -0.47 44.90
WTI -0.67% -0.29 42.82
*Source: Bloomberg

Asian equities were trading higher on Friday morning, tracking gains in the US as stock valuation in the region recover from Thursday's rout. The Nikkei, KOSPI and ASX200 were each trading higher, with the KOSPI leading gains, rising 1.14% in the earlier hours of Friday's trading session. Futures tracking major indices in the US were trading higher on Friday morning as of 9.11am (GMT +8) as well, signalling that the rally in stocks may be able to continue into Friday's trading in the US with a potential rotation into more cyclical stocks while maintaining some gains in growth stocks.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +0.82% +189.12 23,069.74 9:01:30 AM
KOSPI +1.14% +25.78 2,300.00 9:21:30 AM
ASX200 +0.40% +24.88 6,144.90 9:21:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.30% +84.00 27,753.00 9:11:28 AM
US Futures +0.27% +9.25 3,390.00 9:11:30 AM
Nasdaq Futures +0.30% +35.00 11,511.75 9:11:31 AM
*Source: Bloomberg

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

  • UK Jul Retail Sales (2pm)
  • Germany Aug Manufacturing/Services PMI (Markit) (P) (3.30pm)
  • Eurozone Aug Manufacturing/Services PMI (Markit) (P) (4pm)
  • UK Aug Manufacturing/Services PMI (Markit) (P) (4.30pm)
  • US Aug Manufacturing/Services PMI (Markit) (P) (9.45pm)

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

  • Pinduoduo (7.30pm)
  • Meituan Dianping
  • Thai Beverage