Tuesday, August 25, 2020

Asia Times: American Airlines surge more than 10% on Monday following US-specific news on novel coronavirus vaccines and treatments

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

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Market Recap: American Airlines surge more than 10% on Monday following US-specific news on novel coronavirus vaccines and treatments

US equities come off a winning day thanks to renewed hopes for a vaccine for the novel coronavirus. The US government signalled that it may be considering to fast track vaccines being developed by AstraZeneca and Oxford University, likely hoping that it will available before the November presidential elections. News that the US Food and Drug Administration (FDA) had given emergency authorisation for the use of plasma from recovered patients as a treatment option also likely helped drive financial markets. Elsewhere, scientists in Hong Kong confirmed the first re-infection of the coronavirus after a man who recovered from an initial infection in April tested positive after returning from Europe this month. Studies by researchers at the University of Hong Kong suggested that he had been infected by two separate strains and that subsequent infections may be milder than the first. Investors should be mindful of the discovery if true, which would potentially have heavier impact on stock prices in the longer-term as a key concern moving forward will shift to the effective timeframes in which future viable vaccines will have. Therefore, longer-term risks may be affected as downsides grow while short-term positions still look likely to benefit from upticks due to positive vaccine and treatment news.

Indexes Daily Change (%) Net Change Closing Price
Dow +1.35% +378.13 28,308.46
S&P500 +1.00% +34.12 3,431.28
Nasdaq +0.60% +67.92 11,379.72
*Source: Bloomberg

Pandemic-depressed stocks drove gains in the S&P500, pushing the index to new highs on the day. Energy and financial sector stocks led gains, rising 2% to reverse some of last week's losses. Top gainers within the index were mostly airline and cruise liner shares, each rising at least 5% on the day, with American Airlines and Carnival Corp leading with a 10% surge in value. Healthcare were the only sector to suffer a dip, likely thanks to the perception of alleviated risks causing a shift back into cyclical stocks. While there may be momentum for Monday's top performers, the outlook for the global economy still appears to be mostly the same. The likelihood of a vaccine being released before the November presidential elections looks unlikely, and even if able to pass all trials before that date, is unlikely to reach mass production, deployment and distribution before the elections. The impact from the emergency treatment authorisation from the FDA may also not be long-lasting, with the World Health Organisation suggesting that evidence from the treatment isn't strong enough (most likely in a statiscal sense) to endorse the treatment beyond experimental therapy.

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In the forex market, G10 currencies were largely mixed on the generally positive news on vaccines and treatments in the US. The Norwegian krone led gains in the basket, boosted by a surge in oil prices as twin storms approaching the US Gulf threatens production in the parts of the region. The build-up in the greenback against other major currencies may be attributed to both a US-specific approval for plasma from recovered patients as a form of treatment, coupled with increased risk aversion ahead of the Fed's annual policy symposium this week.

The euro may be in for some downside this week with weakness in the overall currency market with the exception of the dollar. The euro is currently trading close to its one-and-a-half-month trend support level at about 1.1777's level. With indications of muted trading by Bloomberg-interviewed traders, the euro looks likely to be sensitive to economic data releases this week, implicitly suggesting that we may see some additional profit taking this week with economic data in the region likely to continue to show the economic recovery in the EU is starting to slow. For today, Germany's economic sentiment surveys by IFO will likely be the driver of the currency's performance. Consequently, EUR/USD may break the trend support close to 1.1777 and retreat closer to retests its one month low of 1.1749 if economic data in the EU does undershoot expectations over the week. However, upside risks for the currency pair includes Fed Chair Jerome Powell's speech at the Jackson Hole symposium this week, in which investors are looking for more indications for the future of monetary policy.

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Safe haven assets retreat on Monday, as risk aversion fades slightly with US-specific novel coronavirus vaccine and treatment news. Gold suffered slightly, but less to an extent as last seen when there were positive developments for a vaccine. The Japanese yen inched slightly lower against the dollar, but was unable to close above 106.00. US Treasuries fell across the board, pushing benchmark 10-year yields 2.6bps higher to 0.65%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.60% -11.60 1,928.88
Silver -0.69% -0.19 26.61
USD/JPY +0.17% +0.18 105.98
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.8bps 0.15%
10-Year +2.6bps 0.65%
30-Year +1.5bps 1.36%
*Source: Bloomberg

Oil futures gained on Monday, boosted by expectations for a dip in US oil production. More than one million barrels a day worth of US oil production in the Gulf of Mexico were reportedly closed as of midday Sunday. The twin storms, Marco and Laura, appear to be coming from different directions with storm Laura forecasted to turn into a hurricane, are set to cause billions of dollars’ worth in damages to US oil productions. News of the US making considerations to fast track a vaccine and the emergency treatment approval by the FDA likely also helped boost crude oil prices as investors price in chances of an earlier recovery for crude oil demand. On the other hand, worries of a resurgence in infections in the EU and Asia likely curbed gains, resulting in relatively muted profits in comparison to that seen in previous months.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +1.76% +0.78 45.13
WTI +0.66% +0.28 42.62
*Source: Bloomberg

In Asia, stocks were catching up in gains to the US on Tuesday morning, signalling that the overnight surge has spilt over in to the region. The Nikkei, KOSPI and ASX200 were all trading higher in the earlier hours of Tuesday's trading session. Futures tracking major indices in the US were also trading higher, with an obvious skew towards the Dow and S&P500 as opposed to the Nasdaq, suggesting that upward momentum for cyclical stocks or pandemic-depressed stocks is likely to ensue in the Asian region as well.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +1.21% +281.42 23,266.93 8:44:40 AM
KOSPI +0.92% +21.62 2,351.45 9:04:40 AM
ASX200 +0.57% +35.33 6,164.90 9:04:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.28% +79.00 28,318.00 8:54:39 AM
US Futures +0.23% +7.75 3,435.25 8:54:42 AM
Nasdaq Futures +0.06% +7.50 11,643.75 8:54:40 AM
*Source: Bloomberg

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

  • Germany Q2 GDP (F) (2pm)
  • Germany Aug Current Assessment/Expectations (IFO) (4pm)
  • US Jun Home Price Indices (FHFA) (9pm)
  • US Jul New Home Sales (10pm)
  • US Aug Consumer Confidence (Conf. Board) (10pm)