Monday, September 21, 2020

Asia Times: Nasdaq erases all of its gains from August; Oil prices faces pressure from Libya restarting production

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

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Market Recap: Nasdaq erases all of its gains from August; Oil prices faces pressure from Libya restarting production

Wall Street equities fell broadly on Friday with mega-cap tech shares weighing the most on major indices in the US. The dip in equity came despite better-than-expected preliminary consumer sentiment data from the University of Michigan, signalling that rotations of portfolio weightages as well as profit-taking likely continues to outweigh economic conditions. The University of Michigan's consumer sentiment index rose to 78.9 in September from 74.1 in August and above economists' forecasts for 75.0, as the index showed both current situation and expectations improving in the month (Current situation: 87.5 (A), 82.9 (P), 83.1 (E); Expectations: 73.3 (A), 68.5 (P), 67.2 (E)). The increased volatility due to the quarterly quadruple witching event, when options and futures on indexes and equities expire, may have also resulted in an amplified effect on the downward pressure on equities as the earlier-reported net bullish contracts in the derivative market gets rebalanced downward into a more normalised level.

Indexes Daily Change (%) Net Change Closing Price
Dow -0.88% -244.56 27,657.42
S&P500 -1.12% -37.54 3,319.47
Nasdaq -1.07% -117.00 10,793.28
*Source: Bloomberg

Real estate fell the most among sectors in the S&P500, as the sector looks increasingly likely to face headwinds moving into final quarter of the year as seasonal factors coupled with the pandemic is likely to put pressure on property prices. Largely underperforming the S&P500 were cruise liners. The health care sector led gains, followed by financials in the S&P500. We also continue to notice smaller cap indices (Russell 2000: -0.38%; S&P600: -0.60%) outperforming all three of the major US indices. The tech heavy S&P500 and Nasdaq 100 were the worst performers among major indices in the US. While Friday saw both the Nasdaq Composite and the Nasdaq 100 has erasing all of its gains from August, their year-to-date performance continues to top that of other major indices at 20.29% and 25.24% respectively. In company news, US President Donald Trump has approved Oracle's bid for the US operations of TikTok. All that's left is for China to sign off on the transaction as well as Oracle and Walmart to agree to ByteDance's valuation of US$60 billion for the company. If completed, Oracle will own 12.5% of the new US company, while Walmart will control 7.5%. Trump also indicated that the total control of US-based entities in the new US company will satisfy the White House’s requirements at 53%, although it appears that the 53% consists of US investors in the new company (Oracle and Walmart) as well as existing ones in ByteDance (US investors holds a 40% stake in ByteDance). Trump said that the business will donate US$5 billion to an educational fund, meeting his requirement for a contribution to the US government.

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Weekly performances were mixed around the globe. Major indices in the Asian region outperformed that of the US, likely thanks to a weaker dollar in addition to what is likely to be a greater shift towards equities in the region due to its undervaluation. Indices in the EMEA region didn't fare as well however, and may be attributed to the growing risk in the region due to rising Covid-19 infections. France's pace of new daily Covid-19 cases continues to accelerate past that seen in March and April, while other member countries in the EU bloc announced new restrictions on Friday in an attempt to curb surging Covid-19 cases. In the FTSE100's case, losses were likely a result downward pressure from a recovering sterling after a sharp decline in the previous week when UK-EU tensions escalated. On a more global scale, investors may continue to keep a closer watch on US and Asian equities as we continue to see a greater rotation out of major tech companies in the US, possibly towards underperforming sectors in the US and stocks in the Asian region.

Indexes Weekly Change (%) Net Change Closing Price
Dow -0.03% -8.22 27,657.42
S&P500 -0.64% -21.50 3,319.47
Nasdaq -0.56% -60.26 10,793.28
FTSE100 -0.42% -25.04 6,007.05
Dax -0.66% -86.59 13,116.25
Stoxx -0.97% -32.12 3,283.69
Nikkei -0.20% -46.19 23,360.30
CSI300 +2.37% +109.81 4,737.09
KOSPI +0.66% +15.71 2,412.40
ASX200 +0.09% +5.08 5,864.50
HSI -0.20% -47.90 24,455.41
STI +0.31% +7.62 2,497.71
*Source: Bloomberg

G10 currencies were mixed against the dollar on Friday, with the greenback experiencing a slight advantage over the majority of major currencies. The reason for the dollar’s outperformance may have been due to better-than-expected consumer confidence for September, as investors may have become slightly more bullish on the US' economic recovery. On the flip side, the dollar likely faced downward pressure from traders unwinding positions ahead of this week, as Fed Chair Jerome Powell gets set to testify to Congress on Covid-19 relief efforts on Tuesday and Thursday in the US. We expect Powell to maintain his stance, which is that the economic recovery in the US may be better-than-initially-expected, but continues to face high levels of uncertainty. We also expect the chairman to continue to put emphasis on his calls to Congress on the need for fiscal stimulus, as more delays to aid for the country will likely result in an unnecessary prolonged economic downturn as well.

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Safe haven assets were mixed last Friday, but risk aversion was likely skewed towards the downside on the day. Gold advanced. The yen gained against both the dollar and the euro to top weekly performance against the dollar in the G10 currency basket. US Treasuries fell across the board, as the yield curve continues to widen. Benchmark 10-year yields gained slightly by 0.5bps to 0.69% as a result, while 30-year yields gained 1.4bps to 1.45%. Volatility indices, VIX and VXN both closed lower on Friday as well.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.33% +6.42 1,950.86
Silver -0.93% -0.25 26.78
USD/JPY -0.16% -0.17 104.57
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.4bps 0.14%
10-Year +0.5bps 0.69%
30-Year +1.4bps 1.45%
*Source: Bloomberg

Oil ended Friday mixed, but still had its best weekly gain since June after a drawdown in US crude inventories and OPEC+'s strong indication of its intention to support oil prices. Sentiment on supply continue to be mixed among oil traders, with Vitol Group expecting crude stockpiles to continue to decline while Trafigura Group anticipating the opposite to happen in the next few months. Continued low levels of demand appears to be the consensus however, as the global economy experiences a gradual economic recovery. News of renewed lockdowns in the EMEA region likely also put downward pressure on oil futures. Both Brent and WTI benchmarks opened Monday's trading session lower after Libya's National Oil Corp indicated that it was resuming production in facilities where militias has exited. The state-owned energy firm said that while it was resuming exports in oil fields that have been free of militias, facilities that continues to be occupied or continue to be at security risk will remain closed. Bloomberg reported that Sharara, the country's largest oil field has not restarted yet, according to a person familiar with the matter. Concerns that an influx of crude oil output from the country is coming at a time when crude oil prices continue to face downward pressure likely weighed on crude benchmarks as a result. Libya's output of crude plummeted from 1.1 million to less than 100,000 barrels a day since March and was exempt form the OPEC+ cuts that were first agreed in April. The key is on whether oil facilities in the country will be able to immediately resume production back to pre-March levels, which at this point looks unlikely as a result of a lack of maintenance works on pipelines in the country (National Oil Corp Chairman Mustafa Sanalla told Bloomberg earlier in June that it would cost more than US$100 million to fix wellheads alone, and that it may take around three months to restore production in Sharara back to 300,000 barrels a day).

Oil Futures Daily Change (%) Net Change Closing Price
Brent -0.35% -0.15 43.15
WTI +0.34% +0.14 41.11
*Source: Bloomberg

In Asia, stocks were trading mixed on Monday morning, with a tilt towards the upside as equities in the region may continue to benefit from the rotation out of mega-tech companies in the US. The Nikkei will remain closed until Wednesday for a public holiday. The KOSPI was trading higher, as a 3.6% YoY rise in exports in the first 20 days of September lifted sentiment for corporate earnings. The ASX200 was trading slightly lower, but was closer to flat in the early hours of Monday's trading session. Futures tracking major indices in the US were trading higher as well, with the Nasdaq 100 e-mini futures leading gains as of 9.22am (GMT +8).

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei - - 23,360.30 -
KOSPI +0.52% +12.50 2,424.90 9:32:30 AM
ASX200 -0.04% -2.50 5,862.00 9:32:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.18% +51.00 27,653.00 9:22:32 AM
US Futures +0.26% +8.50 3,324.75 9:22:35 AM
Nasdaq 100 Futures +0.52% +57.25 10,984.25 9:22:35 AM
*Source: Bloomberg

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

  • US Aug National Activity Index (Chicago Fed) (8.30pm)