Friday, October 9, 2020

Asia Times: Markets rally as Trump switches stance yet again; ECB meeting minutes opens up possibility of further easing

Tags
  • Dollar
  • Gold
  • Yen
  • Euro
  • Stocks
  • Oil
  • European Central Bank

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Market Recap: Markets rally as Trump switches stance yet again; ECB meeting minutes opens up possibility of further easing

Markets rallied again on Thursday as fiscal stimulus news continue to drive markets, while other factors continue to be ignored. US President Donald Trump appeared on Fox news and signalled that the White House has once again shifted back to favour a comprehensive deal, just a couple of days after Trump had called to halt stimulus negotiations with House Speaker Nancy Pelosi. US equities in particular appeared to welcome the news, pushing all major indices climbing higher. However, risks surrounding stimulus negotiations appear to be mostly the same. Pelosi has signalled that a standalone airline bill will be contingent on a bigger and broader package, suggesting that the impasse among Democrats and Republicans will still remain the key factor in delivering new fiscal stimulus. Furthermore, Senate majority leader Mitch McConnell continues to reiterate multiple Republican senators’ views that enough spending has been done, indicating that there will likely still be a hold up of a stimulus bill in the Senate even if the White House and Democrats have an agreement on both a stand-alone package for airlines and a comprehensive proposal for the broad economy.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.43% +122.05 28,425.51
S&P500 +0.80% +27.38 3,446.83
Nasdaq +0.50% +56.38 11,420.98
*Source: Bloomberg

Energy stocks surged on Thursday, boosted by both an uptick in oil prices and stimulus optimism. More upbeat sentiment on the possibility of stimulus measures being passed by Congress also helped lift every S&P500 sector. Overall performance appeared to be skewed towards smaller cap performance once again, as we continue to see investors shift towards companies that may likely benefit more from an additional round of stimulus measures. In addition, volatility eased in the market for the second trading session in a row, with VIX falling back to the bottom of its September range.

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Foreign currencies were skewed against the dollar, with most G10 currencies strengthening against the greenback. The Japanese yen fell with the dollar, reinforcing reduction in risk aversion across the market. The New Zealand dollar inched lower as well, likely thanks to increased speculation on weakness in the currency as traders snap up bearish positions to price in a higher likelihood of additional easing from the Reserve Bank of New Zealand (RBNZ). The dollar appeared to be little impact by jobless claims data, which in our view continues to show a depressed labour market. Initial jobless claims inched only slightly lower last week to 840,000 while continuing claims fell by about one million in the previous week. However, the level of claims is more concerning as the data shows unemployment levels flattening near the peak of previous crisis. Furthermore, the dip in continuing claims may also be attributed to prolonged unemployment instead of workers re-entering the jobs markets due to the 26-week claims limit imposed by multiple states in the US.

The European Central Bank's (ECB) September meeting minutes provided additional downside for the euro after revealing that central bankers were less optimistic than ECB President Christine Lagarde's tone during her press conference. The meeting minutes detailed central bankers' concern on the rising risk regarding a downturn in inflation expectations. Overall, the minutes flagged the concern of rising downside risks in the EU, putting pressure on the currency especially since these risks have started to materialise post-meeting, with multiple member countries reintroducing varying degrees of lockdown restrictions to help curb the recent spike in Covid-19 cases. There may be more downside for the euro as a result, as speculation is likely to rise on an easing bias from the ECB later through the year.

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Safe haven assets were rather muted on Thursday as while optimism continued to be the theme for markets, caution was likely at the back of investors’ minds from markets’ sensitivity to multiple changes in tone from Trump. Gold and silver were close to flat. The Japanese yen inched just slightly lower against both the dollar and the euro. US Treasuries were mostly flat as well, with benchmark 10-year yields declining 0.2bps to 0.79%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.34% +6.40 1,893.82
Silver +0.15% +0.04 23.84
USD/JPY +0.05% +0.05 106.03
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.0bps 0.15%
10-Year -0.2bps 0.79%
30-Year +0.1bps 1.59%
*Source: Bloomberg

Oil futures jump on optimism for stimulus measures and supply curbs from Hurricane Delta. Hurricane Delta is set to hit the coast of Louisiana on Friday as a category two hurricane, with a possibility of strengthening. This should add to some downward pressure on crude oil supply, with more than 80% of oil producers in the area already evacuated since October 7th. However, on the demand side, forecasts from OPEC's World Oil Outlook appeared to be more pessimistic in the longer-term. While the coalition expects oil demand to continue to grow for another two decades, its report acknowledges that demand may peak around 2040 due to the rise in demand for electric cars and renewable energy.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +3.22% +1.35 43.34
WTI +3.10% +1.24 41.19
*Source: Bloomberg

Stocks in Asia were trading mixed, a sign of some caution from investors as we head closer into the elections cycle. The Nikkei inched slightly higher, likely boosted from a weaker yen while the ASX200 was trading lower in the earlier hours of Friday's trading session. The South Korean Stock Exchange will remain closed for a holdiay and reopen only on Monday. Futures tracking major indices in the US were positive as of 9.27am (GMT +8), likely thanks to Pelosi's spokesman tweeting that the House Speaker and Mnuchin spoke on the phone regarding a standalone airlines bill and agreed to talk again on Friday in the US.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +0.08% +17.85 23,664.92 9:17:15 AM
KOSPI - - 2,391.96 -
ASX200 -0.21% -12.64 6,089.40 9:37:15 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.40% +115.00 28,425.00 9:27:10 AM
US Futures +0.41% +14.25 3,451.75 9:27:15 AM
Nasdaq 100 Futures +0.28% +32.75 11,571.75 9:27:17 AM
*Source: Bloomberg

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

  • UK Aug Trade Balance (2pm)
  • UK Aug Industrial/Manufacturing Production (2pm)
  • Japan Sep Machine Tool Orders (P) (2pm)
  • Canada Sep Unemployment Rate (8.30pm)