Tuesday, September 1, 2020

Asia Times: RBA’s decision day may put downward pressure on AUD; Tesla spikes 12% following its shares split

Tags
  • China
  • Dollar
  • Gold
  • Yen
  • Stocks
  • Oil
  • AUD
  • RBA

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Market Recap: RBA’s decision day may put downward pressure on AUD; Tesla spikes 12% following its shares split

US equities ended the final day of August lower as most stocks suffered a pullback after Friday's rally likely as a result of regression back towards the mean after last week's strong performance. News that China may intervene in TikTok's sale may also have had some impact on the broad market as Microsoft and Walmart both dipped on concern that the deal with the social media app could be blocked. CNBC also reported that TikTok's deal may be completed as soon as today. The Dow and S&P500 were both down as a result, while the Nasdaq gained as Apple shares supported the broad market from falling further as it surged more than 3% after its stock split. Losses in the broad market also suggests that profit taking took place as investors close their books for the month, along with rebalancing of portfolios after a strong monthly gain in the overall market in August.

Indexes Daily Change (%) Net Change Closing Price
Dow -0.78% -223.82 28,430.05
S&P500 -0.22% -7.70 3,500.31
Nasdaq +0.68% +79.83 11,775.46
*Source: Bloomberg

Among S&P500 sectors, the tech, utilities and health care sectors led gains while the energy sector suffered more than 2% as lower oil prices weighed on the sector. Tech was mainly propped up by a number of stocks including AMD and Apple. AMD's shares spiked 6% after launching its Radeon RX 5300 chipset, a new entry-level gaming GPU to compete with Nvidia's GeForce GTX 1650 card while also undercutting its price as investors welcomed the launch as positive news for AMD in terms of increasing its market share in the segment. In company news, Tesla's shares surged 12.57% on Monday following its stock split. Both Apple and Tesla's jump in stock prices, along with AMD's 6% shares surge suggests that speculators were still searching for positive news in the market.

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US equities had its best monthly performance since April after the initial rebound following March’s selloff. This wasn't the case for equities outside of the US however. With the exception of the KOSPI and CSI300, all other major global indices are still trading negative year-to-date. The difference in performance highlights the disparity between tech-heavy indices globally, and not just in the US. While the bull run appears to have more legs to go on for a while, upside may be limited with valuations and speculative trades at extreme levels (inferred from a surge in more popular stocks such as Tesla and Apple, as well the spike in reported issues by Robinhood in comparison to other brokers), suggesting that profit taking and some diversification away from those sectors while still maintaining a stake may be wise in the longer-run from a portfolio standpoint. Interestingly, Vix also managed to 7.97% through the month of August.

Indexes Monthly Change (%) Monthly Net Change Closing Price
Dow +7.57% +2,001.73 28,430.05
S&P500 +7.01% +229.19 3,500.31
Nasdaq +9.59% +1,030.19 11,775.46
FTSE100 +1.12% +65.81 5,963.57
Dax +5.13% +632.02 12,945.38
Stoxx +3.09% +98.19 3,272.51
Nikkei +6.59% +1,429.76 23,139.76
CSI300 +2.58% +121.17 4,816.22
KOSPI +3.41% +76.80 2,326.17
ASX200 +2.24% +132.68 6,060.46
HSI +2.37% +581.70 25,177.05
STI +0.11% +2.69 2,532.51
*Source: Bloomberg

Elsewhere, the dollar fell against most major currencies in the G10 basket, possibly dragged down by better-than-expected economic data in the US as well as comments from Fed Vice Chair Richard Clarida on the possibility of the implementation of yield curve control. While the vice chair welcomed yield curve control tools as an option for the Fed for further discussion, he also did reiterate that negative rates were not on the Fed's agenda. Dallas Fed's Texas manufacturing outlook survey beat expectations for August, rebounding to 8.0 from -3.0 and above expectations for 0.0 as sentiment among manufacturers in Texas appeared to be much rosier than expected. Consequently, the dollar declined further into a fifth month of decline.

The Reserve Bank of Australia (RBA) is set to announce its decision on monetary policy today, but no one expects any changes to its current set of tools. What the market is looking out for is a more accurate reflection of Victoria's lockdown restrictions on the Australian economy. While the central bank's economic forecasts at its last monetary policy meeting at the start of August was right after stricter restrictions were announced in regions of Victoria, it was unlikely that the stricter restrictions were accounted for. As a result, we think that there may be room for some downward revisions to the RBA's economic forecasts, which should put some downward pressure on the Australian dollar on the announcement of the decision.

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Safe haven assets were mostly higher on Monday, as volatility spiked higher on the day. Gold and silver both rose. The Japanese yen fell against both the dollar and the euro, and was likely in part fuelled by news that Warren Buffett's Berkshire Hathaway had purchased stake in major Japanese trading companies as it probably prompted a shift towards Japanese financial assets as well. US Treasuries were mostly higher across the board, with benchmark 10-year yields falling 1.6bps to 0.70%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.15% +2.97 1,967.80
Silver +2.33% +0.64 28.14
USD/JPY +0.51% +0.54 105.91
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.4bps 0.13%
10-Year -1.6bps 0.70%
30-Year -2.6bps 1.47%
*Source: Bloomberg

Oil futures fell on Monday likely as demand concerns due to a continued increase in Covid-19 around the world weighed on crude benchmarks. The total number of Covid-19 cases in the US topping six million was a reminder that the pandemic is still here to stay despite progress on the vaccine front. Slightly weaker-than-expected manufacturing PMI data from China (from the National Bureau of Statistics) may have also added to the pressure on crude oil prices as well. On the supply side, traders may be more bearish on crude oil prices as more capacity in the US Gulf returns back online following shutdowns in the region due to Hurricane Laura. That said, oil still managed to edge out gains in August, with WTI faring better than Brent when comparing gains from the previous month.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -1.16% -0.53 45.28
WTI -0.84% -0.36 42.61
*Source: Bloomberg

In Asia, stocks were trading mixed on Tuesday morning. The Nikkei was trading slightly in the red, a normalisation following Monday's 1.12% surge in the index after news of Berkshire Hathaway's position in Japanese trading companies. The ASX200 plummeted more than 2% in the early hours of the Tuesday's trading session, after news that indicated China-Australia relations may have taken another turn for the worse. Australian Foreign Minister Marise Payne said that Beijing has detained Cheng Lei, an Australian that works for Chinese government-run CGTN as an anchor, which comes in addition to China's announcement of a subsidy probe into Australian wine after Canberra unveiled a bill that would allow it to cancel deals with China. The KOSPI was trading higher in contrast on Tuesday morning, with gains fuelled by Korean trade data indicating the smallest decline in exports since the Covid-19 outbreak. Futures tracking major indices in the US were mixed as well, with only the Nasdaq gaining as of 8.58am (GMT +8).

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.21% -47.73 23,092.03 8:48:10 AM
KOSPI +0.78% +18.24 2,344.41 9:08:10 AM
ASX200 -2.05% -121.66 5,938.80 9:07:44 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.05% -13.00 28,403.00 8:58:08 AM
US Futures -0.09% -3.25 3,495.75 8:58:09 AM
Nasdaq Futures +0.15% +18.00 12,132.00 8:58:08 AM
*Source: Bloomberg

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

  • RBA Interest Rate Decision/Statement (12.30pm)
  • Germany Aug Unemployment Rate/Change (3.55pm)
  • Eurozone Aug Inflation Rate (Core CPI/CPI) (P) (5pm)
  • Eurozone Jul Unemployment Rate (5pm)
  • US Aug Manufacturing PMI (ISM) (10pm)