Monday, October 19, 2020

Asia Times: US equites end three-day rout; Sterling remains supported despite Boris Johnson’s warnings on no-deal Brexit

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  • Yen
  • Pound
  • Stocks
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Market Recap: US equites end three-day rout; Sterling remains supported despite Boris Johnson’s warnings on no-deal Brexit

US equities ended last week mixed, driven by better-than-expected economic data in the US earlier in the day before Big Tech companies pared gains on movements in the options market. September's adjusted headline retail sales (A: 1.9%, E: 0.8%, P: 0.6%) and the University of Michigan's preliminary estimate for consumer sentiment index (A: 81.2, E: 80.5, P: 80.4) both beat expectations, boosting investor confidence earlier in the day. A decline in industrial production for September may be some cause for concern however, as the momentum in the manufacturing sector starts to ease after a sharp rebound earlier since June. Reports from Pfizer that it could seek emergency approval for its experimental in the US by the end of the year if it proves to be effective may have helped boost stock prices as well. The Dow gained, the S&P500 was close to flat while the Nasdaq Composite ended the day lower. The Dow's outperformance over other major indices was driven in part by news that Europe's aviation regulator will be approving the 737 Max aircraft for flight by the end of the year.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.39% +112.11 28,606.31
S&P500 +0.01% +0.47 3,483.81
Nasdaq -0.36% -42.31 11,671.56
*Source: Bloomberg

S&P500 sector performance was split on Friday as investors’ sentiment was mostly mixed on the outlook for the US. Losses were mostly from the energy sector as oil producers continue to face headwinds with low oil prices and a dip in manufacturing activity in the US during the month of September. Increasing counts of daily Covid-19 cases across the world is likely also weighing on the sector, as the risk of reintroductions of lockdown restrictions increases by the day. Smaller caps fell on the day as well, mostly underperforming major indices, while VIX and VXN mostly fell on the day.

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Despite last week's down days, major indices in the US still managed to eke out gains for the third week in a row, with the Dow managing to hold on to year-to-date gains. Asian indices mostly topped other indices in weekly gains, as developed economies in the region appear to be faring better at curbing the spread of the virus. Robust economic data from China likely also probably helped lift stocks in the region over the week, as the Chinese economy continues to outperform that of other countries over the world. The week ahead will likely continue to be volatile for equities as US elections and stimulus remains the focus for investors, coupled with additional economic events over the week such as China's Q3 GDP reading in the morning today and OPEC+'s monthly review of its current oil production limits.

Indexes Weekly Change (%) Net Change Closing Price
Dow +0.07% +19.41 28,606.31
S&P500 +0.19% +6.68 3,483.81
Nasdaq +0.79% +91.62 11,671.56
FTSE100 -1.61% -97.07 5,919.58
Dax -1.09% -142.24 12,908.99
Stoxx -0.84% -27.65 3,245.47
Nikkei -0.89% -209.06 23,410.63
CSI300 +2.36% +110.54 4,791.68
KOSPI -2.11% -50.43 2,341.53
ASX200 +1.22% +74.62 6,176.79
HSI +1.11% +267.66 24,386.79
STI +0.00% +0.06 2,533.02
*Source: Bloomberg

DXY ended Friday lower, as investors took improvements in retail sales and consumer sentiment data as a signal to increase their risk appetites. A closer look at retail sales data however, shows that the recovery in consumer spending continues to be imbalanced, with a strong bias towards goods as opposed to services. Seasonal adjustments have also been distorted, with stronger sales in back-to-school sales seen during September instead of August. We expect seasonal distortions to continue into the next quarter, especially with the upcoming holiday season. That said, the strong retail sales data for September is another confirmation for the sharp rebound for GDP QoQ data for Q3.

Sterling fluctuated wildly last Friday as traders weighed on the prospects between a deal or no-deal scenario for the UK's EU exit. British Prime Minister Boris Johnson's warnings to UK businesses on Friday to prepare for a no-deal Brexit rattled traders, putting some short-lived downward pressure on the sterling. However, while Johnson told reporters that the UK will now start to prepare measures for a no-deal Brexit, he did not specifically say he would break off discussions with the bloc. This grew more evident over the day as EU Commissioner Ursula Von der Leyen and German Chancellor Angela Merkel both signalled that the EU will continue to negotiate with the UK this week. GBP/USD managed to recover losses earlier in the day on renewed hopes as a result.

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Safe haven assets ended he Friday slightly lower on possible optimism in the market. Gold and silver both ended the day lower. The Japanese yen gained against the dollar but weakened against the euro. US Treasuries fell across the board as well, with benchmark 10-year yields inching 1.3bps higher to 0.75%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.49% -9.42 1,899.29
Silver -0.59% -0.14 24.16
USD/JPY -0.05% -0.05 105.40
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.4bps 0.14%
10-Year +1.3bps 0.75%
30-Year +1.5bps 1.53%
*Source: Bloomberg

Oil futures ended the day only slightly lower, as traders wait on an OPEC+ ministerial meeting later today as the coalition conducts its monthly review on the current oil production limit agreement. Reports that Russian President Vladimir Putin and Saudi Arabian Crown Prince Mohammed Bin Salman have spoken by phone over the week may have had oil traders more hopeful that the bloc will reconsider its plans to taper off out limits that is scheduled in January. Expect volatility for oil today as a result. Any upside however, may be limited by the increasing risk of reintroductions of Covid-19-related lockdown restrictions across the world.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -0.53% -0.23 42.93
WTI -0.20% -0.08 40.88
*Source: Bloomberg

Stocks were trading higher in Asia, possibly after House Speaker Nancy Pelosi set Tuesday as a deadline for more additional stimulus measures. The announcement came after stimulus discussions between Pelosi and US Treasury Secretary Steven Mnuchin over the weekend. However, the largest hurdle for any stimulus proposal remains at the Senate, a possibility which Senate Majority Leader Mitch McConnell has repeatedly downplayed as he expects Senate Republicans to be mostly against that large of a spending bill. The Nikkei, KOSPI and ASX200 were all trading higher on Monday morning as a result. Futures tracking major indices in the US were trading well in to the green as of 9.32am (GMT +8) as well.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +1.10% +260.48 23,671.11 10:00:50 AM
KOSPI +0.75% +17.77 2,359.30 10:20:50 AM
ASX200 +1.06% +66.31 6,243.10 10:20:44 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.61% +173.00 28,581.00 10:10:50 AM
US Futures +0.65% +22.50 3,484.75 10:10:52 AM
Nasdaq 100 Futures +0.84% +100.50 11,897.75 10:10:52 AM
*Source: Bloomberg

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

  • China Q3 GDP (10am)
  • China Sep Industrial Production (10am)
  • China Sep Retail Sales (10am)