Thursday, September 10, 2020

Asia Times: US equities rebound as tech leads the way with dip-buying and a shift back into more defensive sectors

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  • Dollar
  • Gold
  • Yen
  • Euro
  • Pound
  • Stocks
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  • Bank of Canada

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Market Recap: US equities rebound as tech leads the way with dip-buying and a shift back into more defensive sectors

Tech rebounds to have one its best performances since April as the sector's performance pushes major indices into a strong recovery following the three-day rout. It does seem that the rebound on Wednesday may have been due to a combination of defensive positioning due to vaccine concerns after AstraZeneca paused its trials for its experimental coronavirus vaccine in addition to buy-the-dip plays. AstraZeneca had said in a statement on Tuesday that it would put trials on hold due to a suspected serious adverse reaction in a participant in the UK. The pause, while not unprecedented, likely served as a reminder to investors that a potential vaccine still commands some uncertainty. This likely sparked some risk aversion and a shift back into growth shares and sectors that are considered to be more defensive in the pandemic. The Financial Times reported on Wednesday during US trading hours that the drug maker was reviewing the event and could resume trials as early as next week after the study's independent data monitoring board has investigated, citing people associated with the trial. While a shift back into defensive positions could be seen in the market (small cap indices underperformed major indices in the US for the first time in the last five trading sessions), buy-the-dip strategies could be seen implemented across the mega-cap stocks as the VIX and VXN volatility gauges both declined.

Indexes Daily Change (%) Net Change Closing Price
Dow +1.60% +439.58 27,940.47
S&P500 +2.01% +67.12 3,398.96
Nasdaq +2.71% +293.87 11,141.56
*Source: Bloomberg

Sectors gained across the board in the S&P500, with tech leading gains while energy and financials underperformed other sectors. Mega-cap tech stocks such as Microsoft and Apple each gained at least 3%, while other popular tech shares such as Nvidia gained 6.73%. The Nasdaq 100 tech index managed to stay above its 50-day moving average and gained 2.95% to recover nearly a fourth of its losses over the past three days. Tesla stood out, after its shares jumped back up by 10.92% following a 21.06% down day.

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The dollar dipped against G10 currencies with the exception of the Japanese yen as risk-on was the theme of Wednesday with the stock market rebounding. The Norwegian krone led gains while the euro and sterling underperformed thanks to Brexit concerns. Bloomberg reported that the EU sees a case for legal action against the UK over its plans to amend the Brexit Withdrawal Agreement. In a document from the EU seen by Bloomberg, the bloc's analysis of the situation suggests that it may have a case to seek legal compensation from the UK before provisions in the UK internal-market bill is passed by Parliament, and that it would have clear justification once the bill gets signed into law. While it remains unclear what the next steps for the UK and EU are, the news signals more deterioration between the two parties, which may be indicative of a higher likelihood of a no-deal Brexit.

As per expectations, the Bank of Canada (BoC) left monetary policy tools unchanged, with little impact on the Canadian dollar. The BoC showed signs of optimism regarding economic activity since its last meeting in July. But any optimism was contrasted with reiterations on its stance on continual monetary policy support by reinforcing that the central bank is willing to do more if needed. Any possibility for the introduction of additional tools such as yield curve control was also reduced, as the central bank noted that its asset purchase program will be calibrated to provide the monetary policy stimulus needed to support the recovery and achieve the inflation objective. The BoC's October meeting will thus likely play a bigger part in the outlook for the country, as it is expected to release a full assessment of its forecasts for the Canadian economy, in which we think the bank is likely to revise its short-term outlook upwards while keeping its longer-term forecasts intact due to the imbalanced recovery across the economy. Governor Tiff Macklem will speak later today (or in the early hours of Friday in Asia at 12.30am GMT +8) on the topic "The uneven effects of Covid-19 on different sectors and people in the economy", which may reveal more detail on how the BoC will assess the state of the economy moving forward due to headline economic figures showing an incomplete picture of the overall economy.

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Safe haven assets mostly fell, while metals rose in tandem with stocks. Gold and silver both gained as it extends its positive correlation with equities during this period. The yen fell against the dollar and the euro. US Treasuries fell across the board. Benchmark 10-year yields gained 2.1bps to 0.70% as a result.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.77% +14.81 1,946.84
Silver +1.16% +0.31 26.98
USD/JPY +0.14% +0.15 106.18
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.6bps 0.15%
10-Year +2.1bps 0.70%
30-Year +3.6bps 1.46%
*Source: Bloomberg

Oil futures rose on Wednesday along with stocks but gave up some of its gains after the American Petroleum Institute's weekly report showed domestic crude inventories rose last week. Traders will be looking to the official report from the US Energy Information Administration (EIA) later today for confirmation of the increase, which will likely put downward pressure on oil. Moving forward however, demand will still remain the key concern and limiting factor for upside in crude oil prices as the short-term recovery in energy demand looks to face downward pressure as the US driving season comes to an end and as the pandemic has reduced refining margins to hover at low levels (crack spread, i.e. the difference between crude oil prices and petroleum products derived from it, in the US for combined gasoline and diesel is currently at its lowest seasonal level in nearly 10 years at about US$8.97 per barrel).

Oil Futures Daily Change (%) Net Change Closing Price
Brent +2.54% +1.01 40.79
WTI +3.51% +1.29 38.05
*Source: Bloomberg

Stocks in Asia tracks US gains on Thursday morning, but futures tracking major US indices point to mixed sentiment for the day. The Nikkei, KOSPI and ASX200 were all trading higher in the early hours of Thursday's trading session and looks likely to continue to enjoy some gains but at a lower extent relative to the US. Futures tracking major indices in the US were trading lower but close to flat as of 9.09am (GMT +8), signalling that there may concerns regarding Thursday's strong rebound.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +0.76% +176.66 23,209.20 8:59:10 AM
KOSPI +0.58% +13.98 2,389.79 9:19:10 AM
ASX200 +0.68% +40.27 5,918.90 9:18:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.08% -23.00 27,828.00 9:08:52 AM
US Futures -0.08% -2.75 3,387.25 9:08:53 AM
Nasdaq 100 Futures -0.01% -1.50 11,378.25 9:09:01 AM
*Source: Bloomberg

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

  • ECB Monetary Policy Decision/Statement (7.45pm)
  • US Sept 4th Initial Jobless Claims (8.30pm)
  • US Aug 28th Continuing Jobless Claims (8.30pm)
  • ECB President Lagarde's Post Decision Press Conference (8.30pm)
  • BoC Governor Macklem’s Speech (12.30am +1)