Tuesday, October 13, 2020

Asia Times: Apple leads tech rally ahead of its iPhone launch; an uptick in VXN suggests that caution may be warranted

Tags
  • China
  • Dollar
  • Gold
  • Yen
  • Stocks
  • Oil
  • US earnings' season
  • AUD

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Market Recap: Apple leads tech rally ahead of its iPhone launch; an uptick in VXN suggests that caution may be warranted

Wall Street ends another day in the green with Apple and Amazon leading gains ahead of their respective high-profile events. Investors brushed off another stall in stimulus negotiations, after House Majority Leader Steny Hoyer sent out a notice to lawmakers on Monday that no votes are expected in the House this week. The notice from Hoyer came on the heels of a report that multiple Republican senators told US Treasury Steven Mnuchin and White House Chief of Staff Mark Meadows that a stimulus package in the ballpark of US$2 trillion would be too much during a conference call over the weekend. Stocks still managed to rise despite it becoming increasingly clear that it is unlikely for a stimulus bill to be passed ahead of the November presidential elections. Momentum (S&P500 has gained for the fourth trading session in a row) and positive expectations for the upcoming earnings seasons may have contributed to gains. Expectations for potential piecemeal stimulus measures may have also fuelled the rally in stock markets, after it was reported that Mnuchin and Meadows had called on members of the House and Senate for standalone fiscal aid measures instead of the current "all-or-nothing approach".

Indexes Daily Change (%) Net Change Closing Price
Dow +0.88% +250.62 28,837.52
S&P500 +1.64% +57.09 3,534.22
Nasdaq +2.56% +296.32 11,876.26
*Source: Bloomberg

S&P500 sectors were led by gains from Big Tech companies, a sign that investors may be positioning themselves for the upcoming earnings season. Apple surged more than 6% ahead of its iPhone launch day event on Tuesday in the US (October 14th in Singapore/Hong Kong at 1am GMT +8) where it is expected to unveil its latest 5G offering. Amazon advanced 4.75% ahead of its Prime Day event, while Twitter gained 5.12% after being upgraded to a buy from hold by Deutsche Bank analyst Lloyd Walmsley as he expects the company to benefit from stronger advertising recovery as we move into 2021. Companies that underperformed the S&P500 were mostly firms that are still suffering the negative impact of the pandemic, including cruise liners and airlines. Investors may want to take note of the spike in volatility on Monday despite stocks rising, with the VIX inching slightly higher by 0.28% and the VXN index gaining 2.58%. The rise in volatility suggests that the options markets may have driven equities on Monday yet again, similar to what we saw on September 2nd, the day before the large September correction.

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G10 currencies were largely mixed against the dollar on Monday, signalling the dependency of the currency market on US fiscal stimulus headlines. While equities brushed off the diminishing chances of a large stimulus package, commodity-linked currencies all fell against the dollar. The Australian and New Zealand dollar fell the most on Monday, as the selloff was fuelled by the People Bank of China's (PBoC) decision to scrap a two-year rule that made it costlier to bet against the Chinese yuan. The Australian dollar was also impacted by news that China had reportedly suspended purchases of Australian coal as tensions between the two countries escalate. The report suggested that Chinese power stations and steel mills have been verbally told to immediately stop using Australian coal, citing people familiar with the order. AUD/USD fell as much as 0.23% in intraday trading on Monday following the report.

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Safe haven assets traded with a slight upside bias, possibly as some caution was present in markets as stocks rallied. Gold and silver were mostly muted. The Japanese yen managed to strengthen against both the dollar and euro, leading gains in the G10 currency basket. The US cash Treasury market remained closed for the Columbus holiday, while Treasury futures remained mostly flat during the US session.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.40% -7.63 1,922.77
Silver -0.20% -0.05 25.10
USD/JPY -0.27% -0.29 105.33
*Source: Bloomberg

Oil futures plunged more than 2% on Monday with oil production facilities in the US Gulf Coast, Norway and Libya continuing to come back online. About 69% of US Gulf oil output remains shut, down from the 92% last Friday ahead of Hurricane Delta's landfall. Libya's National Oil Corp had reported lifted force majeure on the Sharara field, with expectations by a person with knowledge of the matter for output to reach its capacity of 300,000 barrels a day in 10 days. On the demand side, rising Covid-19 cases and renewed lockdown restrictions in multiple countries are likely to negatively impact demand, while the resumption of some oil refineries in the US Gulf Coast might help alleviate some of that pressure. Overall, crude oil prices continue to face headwinds with downside risks mounting, although with prices last seen during 2016, downside for crude oil prices are likely limited as well, implying that any recovery in crude will probably continue to be slow and gradual.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -2.64% -1.13 41.72
WTI -2.88% -1.17 39.43
*Source: Bloomberg

Stocks in Asia mostly inched lower on Tuesday morning, possibly due to caution on the spike in volatility in the US despite the rally in equities. The Nikkei and KOSPI were both trading lower while the ASX200 advanced more than 1% on the back of a weaker Aussie in the early hours of Tuesday's trading day. Futures tracking major indices in the US were each trading lower as of 9.16am (GMT +8) along with an uptick in the greenback, highlighting a possible surge in risk aversion after the US market closed for the day. The rise in risk aversion may also be attributed to the earnings season in the US that will kick off today, with investors likely to closely watch major US banks for the damage to the economy via loan loss provisions. Delta Air Lines will likely be focused on as well, as investors keep an eye out for liquidity and potential revenue or cash raising streams outside of its core business.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.15% -35.90 23,522.79 9:06:40 AM
KOSPI -0.34% -8.16 2,395.57 9:26:40 AM
ASX200 +1.06% +65.53 6,197.50 9:26:15 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.28% -80.00 28,718.00 9:16:39 AM
US Futures -0.30% -10.50 3,522.25 9:16:40 AM
Nasdaq 100 Futures -0.22% -26.25 12,071.25 9:16:40 AM
*Source: Bloomberg

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

  • UK Sep Unemployment Rate (ILO) (2pm)
  • Germany Sep Inflation Rate (Harmonised CPI/CPI) (2pm)
  • Germany Oct Current Situation/Economic Sentiment Survey (ZEW) (2pm)
  • US Sep Inflation Rate (Core CPI/CPI) (8.30pm)

Companies reporting earnings today include (all timings in GMT +8):

  • JPMorgan Chase & Co (6.45pm)
  • Johnson & Johnson (6.45pm)
  • Citigroup (8pm)
  • BlackRock (8.30pm)
  • Delta Air Lines (10pm)