Tuesday, September 22, 2020

Asia Times: Tech saves major indices from a deeper selloff; gold slides by most in the last 23 sessions

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


Market Recap: Tech saves major indices from a deeper selloff; gold slides by most in the last 23 sessions

Stocks in the US continued to sell off on Monday, briefly pushing the S&P500 close to -10% from its most recent high in September. Investors may have been rattled by the flow of more pessimistic news over the weekend and on Monday, causing a strong reaction in financial markets. One of which may have been the dampening of any residual hopes of a fiscal stimulus bill being passed by Congress before the presidential elections in November, as Democrats and Republicans now clash on the issue of the time frame of nominating a replacement for the late Justice Ruth Bader Ginsburg. Also, the virus resurgence in the European region may have deterred investors on Monday as well, with the UK adding to the list of countries that is considering to reintroduce partial restrictions to contain the spread of the virus. British Prime Minister Boris Johnson will announce new restrictions on bars and restaurants later today, in an effort to prevent the spread of the novel coronavirus. The news came in addition to warnings from former US Food and Drug Administration (FDA) Commissioner Scott Gottlieb that the US may experience another cycle of the virus in coming fall and winter seasons.

Indexes Daily Change (%) Net Change Closing Price
Dow -1.84% -509.72 27,147.70
S&P500 -1.16% -38.41 3,281.06
Nasdaq -0.13% -14.48 10,778.80
*Source: Bloomberg

Tech may have started the day well into the red, but a solid rebound from the sector towards the end of Monday's trading session supported major indices from dropping more than it did. In the S&P500, there was signs of a shift back towards tech and tech-related industries that have outperformed other industries over the period of the pandemic. More broadly, the Nasdaq 100 had a stronger start on Monday relative to other indices, after underperforming both the broad market and the small cap indices in weekly gains in the past three weeks. In contrast, the underperforming S&P500 sectors were materials and industrials, with a stronger downside skew for airlines and cruise liner stocks.


The dollar rebounded, along with risk aversion as investors flock to the greenback for safety amid the equity market selloff on Monday. The Norwegian krone lagged the most among G10 currencies, as crude oil prices dived amid greater concerns for another supply glut. Other laggards included the other commodity-linked currencies, while the safer Japanese yen and Swiss franc fell the least.

The euro fell slightly during Monday's trading session after European Central Bank (ECB) President Christine Lagarde indicated that the central bank has room to ease monetary policy further if needed. EUR/USD dipped by as much as 0.49%, or to as low as 1.1732 in the hours following Lagarde's online speech before rebounding back to erase most of its post-speech losses by the end of the trading session. Lagarde's speech came in some contrast to her post-monetary policy meeting press conference earlier this month, in which she indicated better-than-expected optimism on the EU’s economic recovery. The ECB president also remarked that the central bank was closely watching the euro's appreciation and its impact on inflation in the bloc - and consequently its effect on monetary policy. Lagarde's comments in the speech likely boosted speculation that we will see another round of easing from the central bank, likely through an expansion of its Pandemic Emergency Purchase Program (PEPP) this year to support an economic recovery in the bloc.


Safe haven assets displayed rising risk aversion as well. Gold continues to be detached from its safe haven status, as it dropped in tandem with stocks, falling the most in the last 23 trading sessions. Silver dived more than 7%, putting pressure back down on the gold/silver cross after it briefly reached a one-month high on Friday. The Japanese yen weakened against the dollar but gained against the euro to outperform the G10 currency basket. US Treasuries rose across the board, pulling benchmark 10-year yields back down by 2.8bps to 0.67%. VIX spiked up by 7.55%, the most since September 3rd. VXN only gained by 1.08%, in comparison to the 5.00% and 2.23% spike seen last Wednesday and Thursday, signalling that investors may have been using tech as a safe haven proxy on Monday.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -1.97% -38.35 1,912.51
Silver -7.72% -2.07 24.72
USD/JPY +0.08% +0.08 104.65
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.2bps 0.14%
10-Year -2.8bps 0.67%
30-Year -3.8bps 1.41%
*Source: Bloomberg

Oil futures dived following concerns that the restarting of production facilities in Libya may add on even more stockpiles in an already over-supplied crude oil market. Forecasts from Goldman Sachs suggests that Libya's exports may experience an initial sharp spike due to large stockpiles at ports, before output rises to 500,000 barrels per day by the end of the year. The initial spike as well as expectations for increased output from the current level of around 90,000 barrels per day likely caused investors to react negatively to the news as the crude oil market continues to face dampened demand amid a supply glut. While Libya's National Oil Corp has ended force majeure before earlier in June only to have it resume hours later, it does seem that this time could be different due to the broad backing of international powers behind a deal between parties involved in the Libya's conflict. But it is important to note that there is still inherent risk as the accord has yet to be signed off by all parties involved in the conflict. Resurgence of Covid-19 cases in the EMEA region likely also put pressure on crude oil futures with reintroductions of Covid-19 restrictions that has or is set to come into effect in countries including the UK, Denmark, Spain and Greece.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -3.96% -1.71 41.44
WTI -4.38% -1.80 39.31
*Source: Bloomberg

In Asia, stocks look set to track losses in the US as risk aversion is likely to spill over in the region as well. The stronger dollar may also weigh on indices in the region. The KOSPI and ASX200 were both trading lower as of 9.17am (GMT +8). The Tokyo Stock Exchange will remain closed for the day and only reopen tomorrow. Futures tracking major indices in the US were trading lower, with Nasdaq 100 e-mini futures having a slight edge in gains over S&P500 and Dow e-mini futures as of 9.07am (GMT +8).

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei - - 23,360.30 -
KOSPI -1.14% -26.92 2,362.47 9:17:50 AM
ASX200 -0.67% -38.52 5,784.10 9:17:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.15% +41.00 27,096.00 9:07:42 AM
US Futures +0.20% +6.50 3,281.50 9:07:53 AM
Nasdaq 100 Futures +0.27% +29.25 11,018.25 9:07:53 AM
*Source: Bloomberg

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

  • US Aug Existing Home Sales (10pm)
  • Fed Chair Powell Testifies Before House Financial Panel (10.30pm)