Monday, September 28, 2020

Asia Times: US equities more convincingly regains footing on Friday, suggesting a possible renewal in appetite for tech and growth shares

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

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Market Recap: US equities more convincingly regains footing on Friday, suggesting a possible renewal in appetite for tech and growth shares

Wall Street rebounded on Friday, possibly thanks to a combination of signals for the resumption of stimulus negotiations, fund window dressing and dip buying. US market performance was largely skewed towards tech stocks and growth stocks on Friday, suggesting that investors may be starting to shift back towards growth and tech shares after largely underperforming value stocks for the past two weeks. Fund window dressing may have been a possible factor of Friday's larger-than-usual jump as we come to the end of the third quarter of the year. Another sign that there may be a pause to the selloff since the start of the month was the CBOE fear gauge, VIX, falling back below its 100-day and 50-day moving averages to its lowest level since September 1st.

Indexes Daily Change (%) Net Change Closing Price
Dow +1.34% +358.52 27,173.96
S&P500 +1.60% +51.87 3,298.46
Nasdaq +2.26% +241.29 10,913.56
*Source: Bloomberg

While shares of mega-cap tech companies contributed the most to gains in the S&P500, riskier sector stocks led the index in terms of percentage gains. Overall performance in the S&P500 was led by FAANG and Microsoft shares, each gaining upwards of 2% with the exception of Google parent Alphabet that only rose upwards of 1%. Apple's stock rose the most, advancing 3.75% on Friday. Cruise liner shares jumped after Barclays upgraded shares of Carnival (+9.68%), Royal Caribbean Cruises (+7.70%) and Norwegian Cruise Line Holdings (+13.67%) to overweight as the bank views the potential upside in stock valuations to outweigh the downside risks that have already been largely priced in by the market. Airline stocks jumped as well, likely in tandem with the rising optimism for stimulus negotiations to resume. Shares of Boeing surged 6.83% after it was reported that US Federal Aviation Administration (FAA) chief Steve Dickson plans to test-fly the grounded 737 Max on Wednesday, likely in an attempt to send a strong signal to the general population of the renewed confidence in the aircraft following regulatory assessments and system alterations by Boeing after being grounded for safety issues.

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Weekly index performance signals an appetite for tech and growth maybe resurfacing. The S&P500 fell the least among global major indices last week, while the ASX200 and Nasdaq Composite where the only indices to make gains over the week. European indices retreated likely on spiking Covid-19 cases in multiple countries in the region. Most notably in France and the UK, where the pace of daily new cases continues to accelerate. Renewed lockdown restrictions - while not to the extent seen in March and April - likely had an impact on stock valuations in the region as well. Stocks in Asia continue to face downward pressure as well, but may have been more likely due to the increasing dollar, which has seen a sharp rebound last week.

Indexes Weekly Change (%) Net Change Closing Price
Dow -1.75% -483.46 27,173.96
S&P500 -0.63% -21.01 3,298.46
Nasdaq +1.11% +120.28 10,913.56
FTSE100 -2.74% -164.38 5,842.67
Dax -4.93% -647.05 12,469.20
Stoxx -4.47% -146.63 3,137.06
Nikkei -0.67% -155.68 23,204.62
CSI300 -3.53% -167.07 4,570.02
KOSPI -5.54% -133.61 2,278.79
ASX200 +1.71% +100.42 5,964.92
HSI -4.99% -1,219.99 23,235.42
STI -1.02% -25.43 2,472.28
*Source: Bloomberg

The dollar ended the week higher against the G10 basket of currencies, to have its best week since the week ended April 3rd earlier this year. Durable goods orders in the US for August appeared to have minimal impact on the greenback despite falling short of economists’ expectations likely due to the lagging nature of the index. Nonetheless, the slowdown in durable goods orders continues to continues to be in line with a more gradual economic recovery especially with prominent downside risks and uncertainty dampening business sentiment. In addition, both orders and shipments excluding transportation goods have already rebounded to pre-Covid-19 levels, signalling that it is more likely for growth to slow down in the coming quarter. Instead, safe haven demand may continue to be a driver for the greenback's demand, along with declining prospects for the EU and the spike in emerging market currency volatility. However, the dollar still appears to be in an overall downtrend, suggesting that the current jump may potentially only be a correction following the sharp losses since the start of June.

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Safe haven assets were mixed, but there was likely still a tilt towards risk aversion in the market. Metals fell, but more likely was a result of dollar rally. The Japanese yen weakened against the dollar but was the third best performer in the G10 currency basket. US Treasuries gained across the board, with benchmark 10-year yields falling 1.1bps to 0.65%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.35% -6.49 1,861.58
Silver -1.12% -0.26 22.89
USD/JPY +0.16% +0.17 105.58
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.4bps 0.13%
10-Year -1.1bps 0.65%
30-Year -0.7bps 1.40%
*Source: Bloomberg

Oil futures inched slightly lower on Friday on conflicting reports on crude oil supply on demand. The resumption of stimulus talks as well as a rebound in equity markets likely helped sentiment in the oil market as well, but crude oil benchmarks were likely pressured by reintroduced lockdown measures and non-official reports from oil traders suggesting a sharp increase in Iraqi exports for the month. Crude oil prices may face more downward pressure this week, as concerns on demand and increasing supply in crude oil markets are likely to limit any gains on positive signals from a fiscal stimulus bill from the US government. This is due to the increasing number of bearish remarks from oil officials and traders that it is more probable for demand to remain on a gradual and slow recovery especially with Covid-19 restrictions starting to be reintroduced in large developed countries. In addition, Libya's crude oil production was reportedly tripled to 250,000 barrels a day by a Bloomberg article citing people with knowledge of the situation. If true, it is likely that we will continue to see a ramp-up of production in the country as restarts production at an increasing number of oil fields.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -0.05% -0.02 41.92
WTI -0.15% -0.06 40.25
*Source: Bloomberg

Stocks in the Asia were mixed on Monday morning, but looks probable to track US gains from Friday. The Nikkei and KOSPI were both trading higher in the earlier hours of Monday's trading session, while the ASX200 was slightly negative in contrast. Futures tracking major indices in the US were trading slightly higher as of 8.53am (GMT +8) as well.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +0.59% +136.61 23,341.23 8:43:40 AM
KOSPI +0.59% +13.46 2,292.25 9:03:40 AM
ASX200 -0.28% -16.52 5,948.40 9:03:44 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.27% +74.00 27,117.00 8:53:33 AM
US Futures +0.23% +7.50 3,294.75 8:53:44 AM
Nasdaq 100 Futures +0.18% +20.50 11,157.00 8:53:42 AM
*Source: Bloomberg

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

  • US Manufacturing Activity Index (Dallas Fed) (10.30pm)