Friday, September 11, 2020

Asia Times: Stocks retreat on Thursday as jobless claims stalls in the US while a stimulus plan fails to pass through the Senate

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

09112020a

Market Recap: Stocks retreat on Thursday as jobless claims stalls in the US while a stimulus plan fails to pass through the Senate

Major US indices fall on Thursday, raising concerns on the strength of Wednesday's rally. US equities started the day in the green but the early optimism quickly faded as doubts on the US economy as well as uncertainty on whether the Republican's latest stimulus proposal would be able to pass through the Senate. Headline unemployment falling short of expectations probably put some downward pressure on the growing risk appetite from investors that we saw on Wednesday. Seasonal adjusted initial claims stayed flat at 884,000 claimants for the week ended September 5th, while continuing claims crept up by 93,000 to 13.385 million for the week ended August 29th. Non-seasonal adjustments painted a clearer picture of continued weakness in the US labour market, as data showed the total number of actual initial and continuing claims under state programs growing 2.4% and 0.4% in their respective measurement weeks. Stocks then suffered another blow later in the trading session after Senate republicans failed to advance their latest Covid-19 stimulus bill. The bill fell short of the 60 votes needed in the Senate as all Democrats and one Republican opposed it.

Indexes Daily Change (%) Net Change Closing Price
Dow -1.45% -405.89 27,534.58
S&P500 -1.76% -59.77 3,339.19
Nasdaq -1.99% -221.97 10,919.59
*Source: Bloomberg

Energy sank the most among S&P500 sectors as falling crude oil prices weighed on oil producers in the US. Tech also lagged the index but to a smaller extent compared to that of the three-day rout starting late last week. Materials and consumer staples led gains in the S&P500, while smaller-cap indices outperformed major indices, suggesting that rebalancing and profit taking may have continued in financial markets on Thursday. Stocks however, are still on track to make a second weekly loss.

09112020b

Elsewhere, sterling shed an additional 1.52% against the dollar on Thursday, the second decline upwards of 1% this week as Brexit talks fail to progress. Escalating tension between the UK and EU on the UK's controversial Internal Market Bill continues to impact the UK's currency as well after the EU gave the UK three weeks to retract its plan to rewrite the Brexit Withdrawal Agreement. EU Chief Negotiator Michel Barnier downplayed progress in negotiations this week, while a person familiar with the process reportedly offered a more optimistic view on Thursday by saying that there may be signs of progress on fishing quotas, one of the main sticking points between the two parties. Sterling as a result sharply underperformed the basket of G10 currencies.

The euro spiked against the dollar on Thursday following European Central Bank (ECB) President Christine Lagarde's view on the euro’s appreciation. Lagarde's tone when speaking on exchange rate during her press conference following the decision surprised investors as she downplayed the central banks considerations pertaining to the appreciation of the euro. She did however note that the bank will "carefully assess" the currency's inflation, which still implies that the ECB still takes the currency’s strength into consideration. Forex traders were mostly upbeat about Lagarde's shift away from previous president Mario Draghi's stance on foreign exchange however, causing a sharp reaction to the euro during Lagarde's speech. EUR/USD did suffer a reversal back to normal levels later in the day, likely caused by a normalisation of an over-reaction to Lagarde's initial words while also suffering the effects of a stronger dollar as a result of increased risk aversion across financial markets. The central bank also raised their 2020 GDP forecast to -8% from a previous of -8.7%, showing improved sentiment among central bankers. No signs of future easing were indicated, but we still see it as a risk that may materialise over the remainder of the year as economic recovery in member countries peak at pre-Covid-19 levels.

09112020c

Safe haven assets were mostly higher on Thursday, probably thanks to the lack of stimulus from the US and jobless claims in the US undershooting expectations. Gold and silver retreated in tandem with equities, but to a much smaller extent. The Japanese yen gained against the dollar but fell against the euro. Swiss francs however led gains in the G10 currency basket, supporting the theory that risk aversion hiked on Thursday. US Treasuries gained across the board. Benchmark 10-year yields fell 2.3bps as a result to 0.68%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.04% -0.75 1,946.09
Silver -0.38% -0.10 26.88
USD/JPY -0.05% -0.05 106.13
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.8bps 0.14%
10-Year -2.3bps 0.68%
30-Year -3.8bps 1.42%
*Source: Bloomberg

Oil futures fell yet again, but Brent managed to close above US$40 per barrel as US stockpiles grew for the first time since mid-July last week. The weekly report from the US Energy Information Administration (EIA) showed domestic stockpiles increasing last week, with inventories at Cushing, Oklahoma rising to its highest since May. Gasoline and distillate inventories fell, but it appears to be more of a reduction in refinery activity as the industry gears up for reduced demand as the US summer driving season comes to an end. The longer-term outlook for crude oil prices may have improved however, as China's anticipated five-year plan that’s set to start in 2021 may reportedly call for increases to its state reserves of crude according people familiar to the matter. We may as a result see crude oil prices trade more muted today with downside starting to be limited, as the medium-term outlook shifts back towards a more gradual recovery as the market starts to reconsolidate back towards the upside following the selloff.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -1.79% -0.73 40.06
WTI -1.97% -0.75 37.30
*Source: Bloomberg

Asian stocks looked set to fall following the US' pullback, but a decline appears to be limited with indices in the region trading with an upward bias after opening bells. The Nikkei was trading higher as of 9.07am (GMT +8), while the KOSPI and ASX200 continued to trade in the red. Futures tracking major indices were trading higher as of 9.17am (GMT +8).

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +0.28% +66.14 23,301.61 9:07:25 AM
KOSPI -0.54% -12.94 2,383.54 9:27:20 AM
ASX200 -0.87% -51.22 5,857.30 9:27:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.54% +149.00 27,575.00 9:17:21 AM
US Futures +0.52% +17.50 3,347.50 9:17:22 AM
Nasdaq 100 Futures +0.63% +70.25 11,235.75 9:17:19 AM
*Source: Bloomberg

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

  • UK Jul Trade Balance (2pm)
  • UK Jul Industrial/Manufacturing Production (2pm)
  • Germany Aug Inflation Rate (Harmonised CPI/CPI) (F) (2pm)
  • US Aug Inflation Rate (Core CPI/CPI) (8.30pm)