Thursday, September 24, 2020

Asia Times: Downward momentum in markets regain traction as Fed officials increase calls on need for fiscal stimulus



Market Recap: Downward momentum in markets regain traction as Fed officials increase calls on need for fiscal stimulus

Wall Street equities suffer its worse down day since September 8th as other Fed officials echo their pessimism of a US economic recovery in the absence of additional fiscal stimulus from lawmakers. Fed Chair Jerome Powell started the ball rolling at his second testimony to Congress this week, continuing to signal that the need for more support from Congress was likely necessary while at the same time pushing back against comments that suggested the central bank's actions pertaining to the pandemic has benefitted markets over people. Later in the day, Fed Vice Chairman Richard Clarida, Cleveland Fed President Loretta Mester, Chicago Fed President Charles Evans and Boston Fed President Eric Rosengren made remarks that either indicated pessimism for the US' economy in the months ahead, or made more specific comments on the impacts in the absence of stimulus. The comments from Fed officials throughout the day likely weighed on investor sentiment pushing the S&P500 lower throughout Wednesday's trading session to end the day close to a two-month low, and 9.60% lower from the record high in September.

Indexes Daily Change (%) Net Change Closing Price
Dow -1.92% -525.05 26,763.13
S&P500 -2.37% -78.65 3,236.92
Nasdaq -3.02% -330.65 10,632.99
*Source: Bloomberg

The pessimism from Fed officials weighed on markets, and dashed any residual hopes for additional stimulus measures from the US government before the November elections. Risk-on sectors in the S&P500 suffered the most as a result with energy dipping more than 4%, while the more defensive health care and consumer staples sectors fell the least as risk aversion continues to spike up. Tech stocks weighed on the S&P500 as well, with three of the five FAANG stocks losing more than 4% on Wednesday. In company news, shares of Nike topped the S&P500 in terms of percentage gains after the sportswear maker reported better-than-expected quarterly earnings yesterday. Shares of Twitter jumped for the second day in a row to US$45.33 per share, just short of its record high of US$45.42 per share in September 2019 after the social media was upgraded to a buy from hold with a target price of US$59.75 per share (P: US$36.00) by an analyst at Pivotal Research Group. The analyst cited strong user growth amid the pandemic in addition to accelerating conversions to monetizable daily active user as reasons for the upgrade.


The dollar gains against the G10 basket for the third day in a row as market participants flock to the currency amid the selloff in equity markets and as hedging activity likely continues to increase ahead of the November presidential elections in the US. The Norwegian krone fell the most, and is now down more than 8% month-to-date, the most among other G10 currencies. The Australian dollar fell as well, as it suffers downside forces from the weakening global economic outlook and increasing speculations for additional easing from the Reserve Bank of Australia (RBA) by the end of the year.

The New Zealand dollar spiked temporarily on the lack of additional stimulus measures from the Reserve Bank of New Zealand (RBNZ) at its monetary policy meeting on Wednesday, but proceeded to tumble following the announcement as traders speculate an easing cycle in November. The RBNZ's Monetary Policy Committee kept rates unchanged at 0.25% and its ceiling for its Large Scale Asset Purchase (LSAP) programme at NZ$100 billion on Wednesday, while reinforcing its signals for plans to ease policy later in the year. In the central bank's monetary policy statement, it stated that progress was being made on the bank's ability to deploy additional monetary policy instruments that were mentioned in its previous statement in August. Most notably were indications that the Funding for Lending Programme (FLP) under consideration was preferred by the Committee members, and is expected to be ready for deployment by the end of 2020. The remarks on the FLP likely weighed on the Kiwi, putting pressure on the currency pair in addition to the stronger greenback.


Safe haven assets were close to flat with an upside skew, while metals continue to be hammered by the bullish dollar run. Gold fell back below 1,900 as the precious metal suffers a large correction after weeks of trading at a tight range. More interesting, is that the gold-silver cross spiked higher, rising to a new two-month high. The Japanese yen fell against the dollar but was flat against the euro. However, the yen remains the top performing G10 currency against the dollar month-to-date, a signal that risk aversion is still high in the market, as investors may be using the yen as a hedge against heightened uncertainty regarding the November presidential elections. US Treasuries were mostly flat, with benchmark 10-year yields rising only 0.2bps. Both VIX and VXN spiked back above Monday's close.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -1.94% -36.87 1,863.34
Silver -6.64% -1.62 22.78
USD/JPY +0.44% +0.46 105.39
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.4bps 0.14%
10-Year +0.2bps 0.67%
30-Year -0.6bps 1.42%
*Source: Bloomberg

Oil inched slightly higher for the second day in a row, with WTI futures unable to break above US$40 per barrel as gains from declining US crude stockpiles were limited by the dampened economic outlook from the Fed. The US Energy of Information Administration's (EIA) weekly report showed US crude oil inventories dipping by 1.6 million barrels last week (excluding the decline in Strategic Petroleum Reserves of 700,000 barrels), along with a decline in gas and distillate stockpiles. While the EIA's report sent the WTI crude benchmark to briefly pass US$40 per barrel during intraday trading the immense downward pressure in equities likely weighed on the benchmark as well through the rest of the US trading session. In addition, the longer-term outlook for oil may have been weighed down by a resurgence of Covid-19 cases and reintroduced lockdowns across the world. While EIA's report showed US distillate inventories having its largest decline since the onset of the pandemic in the US, margins continue to remain low, signalling that the reduction in inventories may only be due to supply side factors instead of a more robust increase in demand. As a result, the risks for crude oil markets continue to be skewed towards the downside, which will likely limit upside in the short-to-medium-term.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +0.12% +0.05 41.77
WTI +0.33% +0.13 39.93
*Source: Bloomberg

In Asia, stocks in Asia were tracking US losses on Thursday morning, as investors are likely to be increasingly worried on the potential downside in the US markets as the S&P500 reaches close to a 10% drawdown from its record high earlier in the month. The Nikkei, KOSPI and ASX200 were all trading lower in the early hours of Thursday's trading session. In IPO news for Asia, Bloomberg reported that Ant Group is looking to raise US$17.5 billion in its Hong Kong share sale, with another US$17.5 billion in its Shanghai listing. The report stated that the fintech company will not be seeking to lock in cornerstone investors for the Hong Kong listing as it expects retail and institutional investor interest to be sufficient and instead will invite cornerstone investors for the Shanghai listing to mitigate price fluctuations, citing people familiar with the matter. If successful in raising US$35 billion in its dual listing, the fintech firm will valued at about US$250 billion, exceeding that of major banks in the US with the exception of JP Morgan. Futures tracking major indices in the US were mixed as of 8.57am (GMT +8), signalling that uncertainty continues to remain on investors' minds.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.75% -172.38 23,173.56 8:47:00 AM
KOSPI -1.26% -29.08 2,304.16 9:07:00 AM
ASX200 -1.00% -58.63 5,865.30 9:06:44 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.09% +24.00 26,709.00 8:56:52 AM
US Futures +0.03% +1.00 3,232.25 8:57:02 AM
Nasdaq 100 Futures -0.08% -8.50 10,820.50 8:57:00 AM
*Source: Bloomberg

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

  • SNB Monetary Policy Decision/Statement (3.30pm)
  • Germany Sep Business Climate/Expectations Survey (IFO) (4pm)
  • US Sep 18th Initial Jobless Claims (8.30pm)
  • US Sep 11th Continuing Jobless Claims (8.30pm)
  • US Aug New Home Sales (10pm)
  • Fed Chair Powell Testifies Before Senate Banking Committee (10pm)