Monday, August 24, 2020

Asia Times: Greenback regains footing as Brexit negotiations break down; Asian stocks reverses early losses on Monday

Tags
  • Dollar
  • Gold
  • Euro
  • Pound
  • Stocks
  • Oil

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Market Recap: Greenback regains footing as Brexit negotiations break down; Asian stocks reverses early losses on Monday

Stocks in the US ended Friday higher with tech shares lifting the S&P500 and Nasdaq to new record highs. While better-than-expected preliminary PMI data for August in the US from Markit likely helped curbed earlier losses in equity markets after mixed PMI data in the EU, it likely wasn't the driver for stock prices on Friday. The skew in S&P500 sector gains instead suggests that momentum and speculation may have been a greater contributor to Friday's stock market performance.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.69% +190.60 27,930.33
S&P500 +0.34% +11.65 3,397.16
Nasdaq +0.42% +46.85 11,311.80
*Source: Bloomberg

The technology and consumer discretionary sectors led gains in the S&P500, with tech leading the index by a large margin, spiking 1.21% higher while consumer discretionary shares following behind with 0.32% in gains. Tech was driven mainly by Apple's stock surging more than 5%, thanks in part to its upcoming stock split. While in theory a stock split should introduce higher liquidity for the company's stock thanks to higher accessibility, it does not incite material change in terms of the company’s valuation. In addition, with the offering of fractional share trading with multiple brokers in the US, the incentive for stock prices to surge ahead of a stock split is more likely to be lower. This suggests that, inexperienced traders and possibly retail investors, may be the driver of stock prices, with the addition of quantitative funds taking advantage of the momentum by driving liquidity in those stocks to introduce even greater demand to add to share prices. Nvidia was close behind, rising more than 4% after recovering from losses earlier in the week due to its weaker-than-expected outlook for its cloud segment despite posting better-than-expected earnings.

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Only tech-heavy indices made gains last week with the exception of the KOSPI. Only the S&P500, Nasdaq and the CSI300 were able to edge out profits over the week, with the Nasdaq in the lead with 2.65% in weekly gains. The Dow remained largely unchanged, weighed down by contrasting sentiment as well as the Fed's weaker-than-expected outlook for the economic recovery in the US in its most recent monetary policy meeting minutes. The meeting minutes' signals that forward guidance from the central bank may come later than earlier expected likely weighed on global markets as well, since stock valuations have been in part driven by central bank and fiscal policy in recent months. The KOSPI lost 4.27% over the week, and may continue to face additional losses this week with the possibility of stricter lockdown restrictions being floated by the Korean government as the country continues to try to contain the spread of the current Covid-19 outbreak.

Indexes Weekly Change (%) Net Change Closing Price
Dow -0.00% -0.69 27,930.33
S&P500 +0.72% +24.31 3,397.16
Nasdaq +2.65% +292.50 11,311.80
FTSE100 -1.45% -88.15 6,001.89
Dax -1.06% -136.54 12,764.80
Stoxx -1.37% -45.30 3,259.75
Nikkei -1.58% -369.06 22,920.30
CSI300 +0.30% +14.21 4,718.84
KOSPI -4.27% -102.90 2,304.59
ASX200 -0.25% -15.06 6,111.18
HSI -0.27% -69.17 25,113.84
STI -2.04% -52.78 2,528.54
*Source: Bloomberg

The dollar led gains among G10 currencies on Friday, likely thanks to renewed demand resulting from conflicting PMI data in the EU and indications of a possible no-deal Brexit. The intraday chart for the dollar showed the currency climbing through the afternoon in Asia, following weaker-than-expected PMI data for both the manufacturing (A: 51.7, E: 52.7, P: 51.8) and services (A: 50.,1 E: 54.5, P: 54.7) sectors that signals the EU's recovery is starting to slow down. While the UK beat expectations in PMI data, EU's Chief Negotiator Michel Barnier’s comments that "at this stage, an agreement between the UK and EU seems unlikely" probably added to the pressure on investor sentiment and subsequently drove demand for the dollar. The dollar may also start to benefit from uncertainty arising from the upcoming November elections as presidential candidates start to step up their campaigns, media appearances and public speeches. As a result, the dollar may start to have some upward pressure as investors start to prices in a higher likelihood of Democrat candidate Joe Biden winning the elections, according to pre-election polls.

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Safe haven assets were mostly higher last Friday, likely thanks to increased risk aversion following weaker-than-expected economic data in the EU and as investors start to price in a no-deal Brexit. Gold remained subdued and unable to rally back to its previous highs and lost 0.35% on the day. The Japanese yen remained flat against the dollar but surged against the euro. US Treasuries mostly gained across the board with the exception of two-years, which remained largely flat. Benchmark 10-year yields fell 2.3bps to 0.63% as a result.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.35% -6.78 1,940.48
Silver -1.68% -0.46 26.79
USD/JPY 0.00% 0.00 105.80
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.2bps 0.14%
10-Year -2.3bps 0.63%
30-Year -4.3bps 1.34%
*Source: Bloomberg

Oil futures fell on Friday, possibly due to expectations for increased supply in addition to the EU's slowing economic recovery. Both the Brent and WTI crude oil benchmarks ended more than 1% lower on Friday, after Libya's National Oil Corp signalled that it may be able to resume exports when all military groups exits its facilities following a cease-fire agreement between the Libyan government and Field Marshal Khalifa Haftar. While not a confirmation of increased oil supply yet, it does come on the heels of OPEC+'s hike in oil supply this month as it starts to taper off its production cuts from the middle of the year. Crude oil prices this week look more likely to benefit from expectations for a twin storm to hit the US Gulf Coast and disrupt production in the region.  In contrast, downside risks for crude oil prices this week is likely to arise from a spike in Covid-19 cases in countries in Asia and Europe.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -1.22% -0.55 44.35
WTI -1.12% -0.48 42.34
*Source: Bloomberg

In Asia, stocks were trading mixed in the early hours of Monday with a skew towards gains and looks likely to hold on to them as Friday's momentum continues into the start of the week. The Nikkei was trading loser but close to flat, while the KOSPI and ASX200 recovered largely from losses at the opening bell by 9.25am (GMT +8). Futures tracking major indices in the US were trading higher on Monday morning as of 9.15am (GMT +8) as well. Investors will likely be focused on Fed Chair Jerome Powell's policy speech at Jackson Hole, Wyoming which is set for August 27th to 28th via livestream in the US.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.06% -12.63 22,907.67 9:05:20 AM
KOSPI +0.90% +20.96 2,325.55 9:25:20 AM
ASX200 +0.06% +3.42 6,114.60 9:25:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.21% +59.00 27,918.00 9:15:18 AM
US Futures +0.20% +6.50 3,399.00 9:15:24 AM
Nasdaq Futures +0.22% +25.50 11,587.50 9:15:24 AM
*Source: Bloomberg

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

  - US Jul National Activity Index (Chicago Fed) (8.30pm)