Tuesday, October 20, 2020

Asia Times: US stocks close lower with less than a day to Pelosi’s stimulus deadline; AUD falls on a dovish set of minutes

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

10202020a

Market Recap: US stocks close lower with less than a day to Pelosi’s stimulus deadline; AUD falls on a dovish set of minutes

Stocks on Wall Street started the week in the red as investors grew increasingly wary of the incoming fiscal stimulus spending bill. US lawmakers appeared to be no closer to a deal on Monday, just a day ahead of the deadline set by House Speaker Nancy Pelosi in order to pass an agreement through Congress the presidential elections. While progress was suggested to have been made in discussions between Pelosi and Treasury Secretary Steven Mnuchin, both parties still remain far apart on issues ranging from a national testing program and scale of fiscal aid for states. Accelerating daily Covid-19 cases across the world is likely also dampening investor sentiment, as more countries add to the growing list of governments reintroducing lockdown restrictions.

Indexes Daily Change (%) Net Change Closing Price
Dow -1.44% -410.89 28,195.42
S&P500 -1.63% -56.89 3,426.92
Nasdaq -1.65% -192.68 11,478.88
*Source: Bloomberg

S&P500 sectors broadly fell on Monday, as energy shares led losses in the index due to concerns for a further slowdown of recovery for energy demand as more countries reintroduce lockdown restrictions. Of major developed countries, member countries in the EU remain the most concerning at this point, along with the UK. US states also appear to be trending in a similar direction, implicitly suggesting we could see more parts of the US re-impose some form of mobility restriction in the upcoming months. Tech was close behind, with Big Tech companies weighing the most on market-cap weighted indices as traders may be taking profit on the FAANG and Microsoft group after outperforming the S&P500 over the last four weeks. Also note that the VIX and VXN indices has crept back up to an eight-day high after gaining through the entire of last week and yesterday's uptick.

In company news, IBM's third quarter earnings report beat analysts' estimates thanks to revenue driven by its cloud offerings. Despite this, the company's shares fell 3% in afterhours trading as it skipped on providing any specific forward guidance during its earnings call late on Monday in the US. Revenue for the quarter fell 2.6% to US$17.6 billion, faring slightly better than the US$17.5 billion that analysts had forecasted. The was due to its Global Business Services and Global Technology Services units, which houses the part of its business that the company announced earlier this month that it would spin off in order to focus on its cloud computing unit. Total revenue from its cloud segments grew 19% to US$6 billion in contrast. While it appears that moving forward margins and revenue growth is likely to improve for the company due to its planned divestitures, it may only be realised next year due to easing of business spending during the pandemic.

10202020b

Interestingly, the foreign exchange market contrasted equities as an underperforming dollar and yen was more suggestive of a reduction in risk aversion and possible positioning by investors for an eventual stimulus package in the US. Increased certainty regarding the presidential elections may also continue to place additional pressure on the dollar as Joe Biden's lead over US President Donald Trump grows in electoral voting polls. Some mean reversion may also have occurred, with the Norwegian krone leading gains in the basket of G10 currencies.

The Australian dollar fell against all other G10 currencies excluding the greenback on Monday as traders positioned for a dovish set of meeting minutes from the Reserve Bank of Australia (RBA) released early this morning. AUD/USD dipped again on the release of the meeting minutes on Tuesday morning in Asia as it introduced more dovishness from central bankers. As in its monetary policy statement for October, it reiterated its efforts in considering additional monetary policy easing to support jobs as the Australian economy recovers. Also, in October's meeting minutes were agreements from policymakers that additional easing was likely to "gain more traction" as restrictions continued to be lifted, while signalling that more than just progress towards full employment was needed before considering an increase in the cash rate. The meeting minutes likely reinforced speculation that the RBA will ease monetary policy as soon as its meeting in November, putting downward pressure on the Aussie.

10202020c

Similar to the currencies market, safe haven assets fell on Monday as well. Gold and silver were the exception, gaining slightly but mostly staying within its respective ranges. The Japanese yen fell against both the dollar and the euro. US Treasuries fell across the board, pushing benchmark 10-year yields higher to 0.77%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.25% +4.79 1,904.08
Silver +0.96% +0.23 24.39
USD/JPY +0.03% +0.03 105.43
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.2bps 0.15%
10-Year +2.3bps 0.77%
30-Year +3.1bps 1.56%
*Source: Bloomberg

Oil futures closed the day flat as investors weighed between OPEC+'s reassurance to oil markets and elusive US fiscal stimulus measures. As expected, no major decision resulted from yesterday's OPEC+ Joint Ministerial Monitoring Committee's (JMMC) monthly review. While no explicit statements were made on the tapering of output limits scheduled in January, there were implicit signals from the coalition that they were keeping oil markets in close review for a possible delay to the scheduled tapering as officials adopted a more bearish tone. A decision on January's oil production should only be expected in December however, with a separate catalyst for oil prices possibly during the outcome of the November presidential elections in the US.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -0.72% -0.31 42.62
WTI -0.12% -0.05 40.83
*Source: Bloomberg

In Asia, stocks were mildly tracking losses in the US on Tuesday morning. The Nikkei, KOSPI and ASX200 were all trading slightly lower in the early hours of the trading session. Futures tracking major indices in the US were in the green as of 9.13am (GMT +8), possibly signalling an easing of the selloff in US equities when US markets reopen.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.14% -33.83 23,637.30 9:04:00 AM
KOSPI -0.02% -0.48 2,346.26 9:24:00 AM
ASX200 -0.27% -16.78 6,212.60 9:23:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.51% +143.00 28,243.00 9:13:34 AM
US Futures +0.54% +18.75 3,441.50 9:13:54 AM
Nasdaq 100 Futures +0.59% +69.50 11,719.75 9:14:01 AM
*Source: Bloomberg

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

  • China PBoC 1-Year/5-Year Loan Prime Rate (9.30am)
  • US Sep Building Permits (8.30pm)
  • US Sep Housing Starts (8.30pm)

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

  • Procter & Gamble (8pm)
  • Netflix (4am +1)
  • Texas Instruments (4.30am +1)