Friday, September 25, 2020

Asia Times: Sterling gains only slightly as the UK unveils a smaller-than-expected wage subsidy scheme

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Market Recap: Sterling gains only slightly as the UK unveils a smaller-than-expected wage subsidy scheme

US equities recovered slightly on Thursday from its worse day in the month as caution continues to dominate investor sentiment despite US lawmakers signals that stimulus negotiations may resume soon. US Treasury Secretary Steven Mnuchin said during a Senate Banking Committee hearing on Thursday that he was willing to get back to stimulus talks with Democrats, while House Speaker Nancy Pelosi said on Wednesday that she was open to resuming discussions as well. Signals from both sides likely helped improved sentiment in the market, supporting stock prices through the majority of the trading session before dipping on scepticism from other lawmakers on the potential timeline of the negotiations. The House recently passed a stopgap bill (which is still pending a vote from the Senate by the end of next week) that is intended to prevent a government shutdown in October up till December. This should help facilitate stimulus negotiations between lawmakers. However, the more important dynamic on the stimulus front is whether Democrats will be willing to back down from their proposed US$2.2 trillion stimulus, or if the Republicans are willing to step up their threshold closer towards that figure (US President Donald Trump has indicated that he could back up to US$1.5 trillion). At this point it still appears that chances may be slim as Democrats will more likely be unwilling to make much compromises due to Democrat presidential candidate Joe Biden's polls performance over Trump.

On the presidential elections front, investors' concerns on post-elections unrest may have been slightly eased after Republican lawmakers contrasted Trump's earlier refusal to commit to a peaceful transfer of power. Senate majority leader Mitch McConnell, along with other Republican leaders continued to signal that there will be an orderly transfer of power regardless of the November elections outcome on Thursday. Comments from the party's leadership likely helped eased concerns that there could be a potential outrage following the outcome of the US presidential elections, a geopolitical risk that some investors may be started to price in to their own portfolios.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.20% +52.31 26,815.44
S&P500 +0.30% +9.67 3,246.59
Nasdaq +0.37% +39.28 10,672.27
*Source: Bloomberg

Sector performance was relatively muted in comparison to prior days, likely as investors remain mixed on economic landscape of the US. Utilities along with consumer staples led gains in the S&P500 while health care and energy were the underperformers of the day. While all sectors in the S&P500 closed higher with the exception of the health care sector, VIX only fell slightly by 0.24%. This signals that volatility remained at high levels on Thursday, and that yesterday's performance could potentially be only a short normalisation of Wednesday's selloff before we see more volatility moving into today's trading session.


In similar fashion, the foreign currency market was mixed on Thursday. The Dollar Index flattened out after reaching a two-month high, while commodity-linked currencies continued to underperform in the basket of G10 currencies, with the exception of the Canadian loonie. The Canadian dollar gained against the dollar after political risk eased in Canada with Canadian Prime Minister Justin Trudeau appearing to have satisfied New Democratic Party Leader Jagmeet Singh's demands and staving off a possible call for an election in the absence of support of another party during the confidence vote on the Throne Speech earlier this week.

Sterling rose only slightly after British Chancellor of Exchequer Rishi Sunak's new jobs support program fell short of expectations. Sunak announced a six-month job support program on Thursday in an emergency statement to Parliament to help support wages of part-time workers and help firms impacted by lockdown restrictions. The key aspect of the new Jobs Support Scheme (JSS) is its limitations in comparison to the much more generous furlough scheme from earlier this year. The JSS will only support "viable jobs", by only subsidising a third of wages for employees and employers that meet the requirements of the programme. The restrictions of the programme are as follows:

  • Employees must work a third of their hours and be paid by employers for that time
  • The government and the employer will then each only pay one third of the wages for the remaining hours not worked (furlough scheme subsidised up to 80% of workers’ wages in contrast)
  • All SMEs will be eligible for the scheme, while larger businesses will only be eligible if their turnover has fallen during the pandemic
  • The subsidy is capped at under 700 pounds per month per employee
  • The total cost of the programme is estimated to be 300 million pounds per month per million workers on the scheme

Other measures announced included a VAT cut extension for the tourism and hospitality industries for an additional six months (until March 31st), an extension to the deadline for all coronavirus loan schemes to November 30, and an additional 2 billion pounds in funding for the Test and Trace programme. Sterling was mixed on the announcement of Sunak's programme, with GBP/USD swinging between 1.2708 and 1.2781 in the hours following as investors likely were sceptical on the benefits of the programme. While it is better than having no programme, the UK is still likely to face large levels of layoffs in the coming quarter due to the end of the furlough scheme. In addition, British Prime Minister Boris Johnson's reintroduction of restrictions announced earlier this week will likely add additional pressure on businesses as well, and the JSS may not be enough incentive to keep workers in their jobs. As a result, while the UK's outlook does appear to be slightly better than before, it still remains relatively bleak when compared to other G10 members.


Safe havens were mostly muted on Thursday as well, highlighting that volatility remains at high levels despite the easing selloff in equity markets. Gold gained but remained well below the 1,900 level. The Japanese yen inched lower against both the dollar and the euro. US Treasuries advanced across the board, with benchmark 10-year yields falling only slightly by 0.7bps.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.25% +4.73 1,868.07
Silver +1.62% +0.37 23.15
USD/JPY +0.02% +0.02 105.41
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.6bps 0.13%
10-Year -0.7bps 0.67%
30-Year -0.9bps 1.41%
*Source: Bloomberg

Oil futures gained slightly on the back of renewed hopes for stimulus talks to resume in the US, but demand remains a worrying factor. Oil futures continued to climb higher on Thursday, as it continues its upward trajectory despite concerns on demand remaining a key hurdle for a stronger recovery in energy markets. With additional restrictions in multiple developed economies including the UK and France, demand for crude oil is likely to dip further when coupled with seasonal downward pressure. The International Energy Agency (IEA) echoed this sentiment as well at a Bloomberg event on Thursday, with the agency signalling that it is more likely to downgrade demand forecasts in its next report as opposed to an upgrade. The outlook for oil as a result remains the same, a continued gradual upward momentum due to the already low prices, but with significant downside risks as demand continues to be suppressed by demand concerns.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +0.41% +0.17 41.94
WTI +0.95% +0.38 40.31
*Source: Bloomberg

Asian stocks climbed higher on Friday morning as equities look to close the week on a more positive note. The Nikkei, KOSPI and ASX200 were each trading higher in the earlier hours of Friday's trading session. Futures tracking major indices in the US were positive as of 9.28am (GMT +8) as well. Most major indices around the world are trading at a weekly deficit of greater than 1% with the exception of the ASX200. Stocks in the EMEA region, the KOSPI and the HSI looks likely to close the week as the worst performers. Monthly performance skews similarly as well. However, quarterly performances still remain strong for the majority of global indices with the S&P500 still up more than 4% quarter-to-date.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +0.61% +142.72 23,230.54 9:18:50 AM
KOSPI +0.75% +17.20 2,289.90 9:38:50 AM
ASX200 +1.50% +89.66 5,965.60 9:38:44 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.52% +140.00 26,855.00 9:28:14 AM
US Futures +0.58% +18.75 3,256.75 9:28:51 AM
Nasdaq 100 Futures +0.70% +75.75 10,967.50 9:28:53 AM
*Source: Bloomberg

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

  • US Aug Durable Goods Orders (8.30pm)