Thursday, August 27, 2020

Asia Times: Salesforce spikes up more than 26% fuelling speculation to drive another tech rally in the US

Tags
  • China
  • Dollar
  • Gold
  • Euro
  • Stocks
  • Oil

08272020a

Market Recap: Salesforce spikes up more than 26% fuelling speculation to drive another tech rally in the US

A rally between tech and tech related shares drove the broad US market higher on Wednesday as investors ignore escalating US-China relations on issues outside of trade. The South China Morning Post reported on Wednesday that China fired two medium range missiles into the South China Sea on Wednesday morning, a day after China had said that a US U-2 spy plane entered a no-fly zone without permission during a Chinese live-fire naval exercise in the Bohai Sea off of its north coast. While no official comment was present in the report, the report did suggest that the missile launches were a warning signal to the US. In the US, the White House added another 24 Chinese companies to its sanction list, including Guangzhou Haige and units of China Communications Construction for their participation in helping China build islands in the disputed areas of the South China Sea. The blacklist, now includes more than 300 Chinese entities.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.30% +83.48 28,331.92
S&P500 +1.02% +35.11 3,478.73
Nasdaq +1.73% +198.59 11,665.06
*Source: Bloomberg

Oil companies faces more downside pressure after Hurricane Laura was upgraded to a category four hurricane and is expected to cause massive damage to the US Gulf Coast. More than 80% of oil output and close to three million barrels a day of refining capacity has been shut in the region, threatening more depression on the US oil industry which already faces pressure from weakened energy demand from the pandemic. In contrast, speculation looks to be the most probable driver for the tech rally again with shares of Netflix, Adobe and Facebook at the helm. Salesforce led gainers in the S&P500, jumping 26.04% after posting a rosier outlook and better-than-expected quarterly results yesterday. Other than speculation, another driving force may have been possibly a better outlook for advertising and Software-as-a-Service (SaaS) demand as Salesforce's quarterly earnings call was indicative of a larger shift towards the cloud platforms for corporations.

Interestingly, the market appears to have somewhat been desensitised to early-trial vaccine news, with cyclical stocks having limited benefit in terms of stock valuations after Moderna experimental vaccine shoed promise in inducing a good immune response in people over age 56 in early human trials. The data from Moderna shows more promise in regards to antibody response when compared to results from Pfizer-BioNTech but there were some caveats to the result as the company used a different test, and had no signs of inducing T-cells for immunity against the novel coronavirus. Instead, cruise liner stocks were at the bottom of the table for the S&P500, along with financial and energy sector stocks.

08272020b

Commodity-related currencies dominate the G10 basket thanks to growing risk appetite and muted trading for the dollar ahead of Fed Chair Jerome Powell's Jackson Hole speech on Thursday in the US (or 9.10pm (GMT +8) on Thursday in Asia). The euro showed signs of muted trading with a tilt towards the downside, likely as Covid-19 cases start to spike up in multiple member countries including Italy. Focus for the day ahead will most definitely be Powell's speech, as investors will be looking for the direction of future changes to the central bank's monetary policy targets moving forward. The weak performance for the dollar on Wednesday signals that traders may be expecting more dovishness from Powell's speech in regards to the possibility of overshooting inflation targets. This may be in the form of average inflation rate targeting since it looks likely to have a positive impact in the current monetary policy environment as it will allow policymaker to keep the current level of monetary policy while allowing inflation to go above its target before tightening to ensure that the US economy is in a robust economic upcycle. If so, then we may see the dollar retest recent lows.

08272020c

Metals finally recover as safe haven assets showed signs of hedges against surging stock market valuations while at the same time, reduced risk aversion in the bond market ahead of Powell's speech. Gold gained more than 1% after three muted trading sessions that were titled to the downside. The yen gained against both the dollar and euro. US Treasuries fell across the board but was close to flat as bond traders prepare for Powell's upcoming speech. Benchmark 10-year yields were 0.5bps higher at 0.69% as a result.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +1.36% +26.28 1,954.46
Silver +3.64% +0.97 27.50
USD/JPY -0.38% -0.40 105.99
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.1bps 0.15%
10-Year +0.5bps 0.69%
30-Year +2.0bps 1.41%
*Source: Bloomberg

Oil futures were mixed on Wednesday despite expectations for a bigger dent to US crude oil output as a result of an upgrade to Hurricane Laura to a category four hurricane. The mixed trading was probably due to traders realising that energy demand, not only supply, will likely be impacted by Hurricane Laura as well, since about three million barrels a day in refining capacity has already been shut down ahead of the storm's landfall. With the impact of the hurricane also likely to linger longer-than-expected, demand in the region will no doubt negatively impacted as cities shift towards recovery efforts post-storm instead of a focus on economic recovery. There were some bright spots in the US Energy Information Administrations (EIA) weekly crude oil stockpiles report which likely helped to support crude oil prices. The EIA's report showed gasoline supplies declining to the lowest since December while refinery runs climbed to signal a better outlook for energy demand.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -0.48% -0.22 45.64
WTI +0.09% +0.04 43.39
*Source: Bloomberg

Stocks in Asia were trading muted, and looks likely to continue to face reduced volatility as global markets wait on Powell's upcoming speech. Tech stocks in the region may also benefit from the tech rally in the US. The Nikkei and KOSPI were both trading lower while the ASX200 was trading higher in the earlier hours of Thursday's trading day. Futures tracking major indices in the US were trading lower as of 8.59am (GMT +8), indicative of a possible downside correction following a strong start to the week. The S&P500 is now trading 2.40% higher since the start of the week, a level last seen during the week ended August 7th.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.27% -63.10 23,227.76 8:49:40 AM
KOSPI -0.10% -2.44 2,366.88 9:09:40 AM
ASX200 +0.52% +31.74 6,148.10 9:09:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.10% -29.00 28,283.00 8:59:34 AM
US Futures -0.10% -3.50 3,476.75 8:59:37 AM
Nasdaq Futures -0.19% -23.00 11,968.25 8:59:38 AM
*Source: Bloomberg

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

  • Switzerland Q2 GDP (1.45pm)
  • US Aug 21st Initial Jobless Claims (8.30pm)
  • US Aug 14th Continuing Jobless Claims (8.30pm)
  • US Q2 GDP (S) (8.30pm)
  • Fed Chair Jerome Powell's Speech at Jackson Hole Symposium (9.10pm)
  • BoC Governor Tiff Macklem's Speech at Jackson Hole Symposium (11.15pm)