Wednesday, September 30, 2020

Asia Times: Investors pare back on positions ahead of the first presidential debate today

Tags
  • Dollar
  • Gold
  • Euro
  • Stocks
  • Oil

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Market Recap: Investors pare back on positions ahead of the first presidential debate today

Stocks in the US ended Tuesday lower just ahead of the first presidential election debate between Democrat candidate Joe Biden and US President Donald Trump, as trading activity eases on uncertainty. While equities had an early boost likely thanks to a rebound in the Conference Board's consumer confidence index for September, it may have also triggered greater uncertainty of the outcome of the November presidential elections. In addition, investors may also have avoided staying in highly volatile positions today ahead of the debate, since there is expected to be additional volatility post market-close. On the stimulus front, House Speaker Nancy Pelosi and Steven Mnuchin are set to speak again on Wednesday in the US as both parties continue to work towards an agreement for a relief package.

Indexes Daily Change (%) Net Change Closing Price
Dow -0.48% -131.40 27,452.66
S&P500 -0.48% -16.13 3,335.47
Nasdaq -0.29% -32.28 11,085.25
*Source: Bloomberg

S&P500 sectors were broadly down, with a possible shift away from cyclical sectors towards more defensive sectors. Energy fell the most in the S&P500, as oil prices suffer a sharp pullback during the day. Financials followed, as both sectors reversed gains from Monday. A more detailed breakdown of sector performance showed the media and entertainment industry leading gains in the S&P500, with higher profile tech-related stocks such as Facebook and Twitter outperforming most other stocks in the industry. The semiconductor industry was close behind in gains as well. In company news, Disney announced that it was laying off 28,000 workers in the company's theme parks, cruise ships and retail segments, out of which 67% will be part-time workers. The decision from Disney comes as its Disneyland theme park in California continues to remain closed due to the ongoing pandemic, while theme parks in other locations have only partially reopened thanks to social distancing measures. Shares of the company was down 1.33% in after-hours trading.

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The dollar fell on Tuesday, likely thanks to a strong reading in the Conference Board's consumer confidence index for September. Headline consumer confidence came in better-than-expected at 101.8, beating economists' forecasts for an increase to 90. The jump in consumer confidence from the previous reading of 84.8 was the index's largest point gain in 17 years. Stronger short-term expectations provided a larger boost to headline figures as the survey's respondents showed improvements in expectations for both the labour market and income prospects. This was in addition to increased optimism for consumers' current situation as well, with respondents signalling increased sentiment on current business conditions and job availability. While the index remains below pre-Covid-19 levels (118.8 in March and 132.6 in April), the improvement was welcomed by forex traders, as demand for the greenback's safe haven properties continued to fade.

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Safe haven assets were mostly muted ahead of the presidential debate as well, and we may see instruments in the space trade with a slight upside bias as we approach November due to the growing number of downside risks around the globe. Gold and silver inched slightly higher. The Japanese yen fell against both the dollar and the euro. US Treasuries were mostly flat, with benchmark 10-year yields only climbing 0.3bps to close at 0.65%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.88% +16.59 1,898.07
Silver +2.17% +0.51 24.19
USD/JPY +0.15% +0.16 105.66
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.2bps 0.12%
10-Year -0.3bps 0.65%
30-Year +0.0bps 1.41%
*Source: Bloomberg

Oil futures dipped on echoes of pessimism in the market. Risk for renewed lockdown restriction in New York may have rattled some traders and investors, after New York City Mayor Bill de Blasio signalled the possibility of reintroducing lockdown measures after the rate of Covid-19 positives rose to above 3% in the city, the highest in months. The unofficial weekly report from the American Petroleum Institute (API) suggested that US stockpiles declined last week, likely helping to support oil prices from falling further in the process. A number of large independent oil traders has also been increasingly bearish on the outlook for crude oil, with chief executives of Gunvor Group, Mercuria Energy Group and Vitol group expecting demand to remain suppressed in the medium-term or longer. Markets will be watching closely at distillate figures in today's official report from the US Energy Information Administration (EIA) after the API's report suggested a decline in inventories. If true, then we may see some support for oil prices as a decrease in distillate stockpiles will likely alleviate pessimism on demand. However, risks continue to skew crude oil prices towards the downside since demand, while improving, is only expected to show slow and gradual improvements with the absence of a vaccine. Reintroductions of lockdown restrictions, delays in vaccines, increasing oil supply from OPEC+ producers are all downside risks as well.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -3.30% -1.40 41.03
WTI -3.23% -1.31 39.29
*Source: Bloomberg

Stocks in the Asian region looks set to close the last day of September lower thanks to higher volatility and consolidation of positions. Expect some volatility in the morning in Asia today thanks to the presidential debate, incoming PMI data from China and investors closing positions ahead of the Golden Week holiday in China starting tomorrow. Both the Nikkei and the ASX200 were trading lower in the early hours of Wednesday's trading session.  The South Korea Exchange will remain closed until Monday for the Chuseok Festivity holiday. Futures tracking major indices in the US were close to flat as of 9am (GMT +8), likely as a result of mixed sentiment on the presidential debate.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.36% -83.78 23,455.32 8:50:35 AM
KOSPI - - 2,327.89 -
ASX200 -1.25% -73.66 5,878.40 9:10:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.04% +11.00 27,420.00 9:00:35 AM
US Futures +0.04% +1.50 3,335.25 9:00:32 AM
Nasdaq 100 Futures -0.03% -3.50 11,334.25 9:00:30 AM
*Source: Bloomberg

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

  • China Sep Manufacturing/Non-Manufacturing PMI (NBS) (9am)
  • China Sep Manufacturing PMI (Caixin) (9.45am)
  • UK Q2 GDP (F) (2pm)
  • Germany Sep Unemployment Change (3.55pm)
  • US Sep Private Employment Change (ADP) (8.15pm)
  • US Q2 GDP (F) (8.30pm)