Wednesday, October 28, 2020

Markets fall slightly on confirmation of no stimulus before elections; strong earnings from AMD boosts tech

  • Dollar
  • Gold
  • Yen
  • Euro
  • Stocks
  • Oil
  • US earnings' season


Market Recap: Markets fall slightly on confirmation of no stimulus before elections; strong earnings from AMD boosts tech

Tech shares gained while the broader US market fell as equities struggled to regain their footing on Tuesday with investors probably continued to fully price in the absence of any stimulus measures from US lawmakers ahead of the elections. US President Donald Trump had told reporters Tuesday that his administration will get the "best stimulus package you've ever seen" after the elections, another indication that lawmakers have shifted their focus to getting deal done only after November 3rd.

Indexes Daily Change (%) Net Change Closing Price
Dow -0.80% -222.19 27,463.19
S&P500 -0.30% -10.29 3,390.68
Nasdaq +0.64% +72.41 11,431.35
*Source: Bloomberg

S&P500 sectors mostly fell, with a stronger bias against cyclical stocks on Tuesday in comparison to Monday. Tech and tech-related shares topped the index, boosted by shares of Xilinx after it was announced that AMD would acquire the company for US$35 billion using equity offerings. AMD's better-than-expected earnings likely also helped prop up the rest of the industry. The increased risk aversion due to the lack of stimulus measures was also seen in broad market, as smaller-cap indices underperformed against major large cap indices.

AMD tops earnings estimates, contrasting that of Intel as the chipmaker continues to show strong gains in demand for its mobile and server offerings. Other than better-than-expected Q3 revenue (A: US$2.8 billion, E: US$2.56 billion) and adjusted earnings per share (A: US$0.41, E: US$0.35), the company also boosted its revenue forecasts for the current quarter. AMD now expects to see a full year revenue growth of about 41% YoY compared to its previous forecast of +32%. More important was the company's enterprise, embedded and semi-custom segment revenue growing 116% YoY and 101% QoQ during Q3, driven by higher semi-custom product sales and increased EPYC processor sales. This conflicts with what Intel executives had remarked about weakening demand for its own data centre chips due to the global uncertainty during its earnings call last week. It appears that AMD’s earnings confirm our thoughts that Intel is more likely losing market share in the space now that AMD has shown strength in that same segment. The US$35 billion acquisition of Xilinx is also expected to help AMD become even more competitive in certain areas by leveraging Xilinx's field-programmable gate array (FPGA) line of offerings, most probably in the AI, networking, autos and industrials space. Other than competing with Intel's diverse range of products, the acquisition is also likely in response to Nvidia's bid for ARM, which is thought to strongly complement its existing GPU offerings as well as Mellanox assets. We think that the Xilinx acquisition makes sense to add competitive advantage to itself as a result of complementary products, but the long timeline of the deal (only expected to be completed at the end of 2021) is a risk that may materialise in the form of regulatory blocks, similar to that of the Nvidia-ARM deal. AMD's shares declined more than 3% on Tuesday as a result of the all-stock acquisition.


G10 currencies mostly gained against the dollar on Tuesday. The Norwegian krone led gains among the G10 basket, likely boosted by the uptick in oil markets. The Japanese yen was one of the third best performer on Tuesday, signalling that some risk aversion is still present despite the decline in the Swiss franc and dollar. In contrast, the euro fell, likely as Covid-19-related concerns for the EU continue to grow.

Economic data was mixed in the US, with stronger-than-expected durable goods orders but weak consumer confidence readings. Headline durable goods orders rose 1.9% (E: 0.5%, P:0.5%) in September, driven by strong aircraft deliveries which added 2.2 percentage points in the headline figure. Distortions however, were likely present in the headline figure as seasonal adjustments likely factored in a sharper decline compared to Boeing's three cancellations during the month. That said, core capital goods orders also came in better-than-expected, driven by fabricated metal products. While better-than-expected, this remains mostly in line with the sentiment that there was pent-up demand following lockdowns during earlier in the year. But with separate components of the index already showing weakness (electrical equipment and machinery orders fell during September), weak corporate earnings and higher levels of uncertainty during the current quarter may weigh on capital investments over the next few readings.

Consumer confidence reflects households' uncertainty of the economy in the coming months. While headline consumer confidence only inched slightly lower than expected, most of the downward pressure came from the forward-looking segment of the index. The expectations component of the Conference Board's index fell to 98.4 (P: 102.9) in October, was indicative of Americans' concern on the lack of fiscal measures in the US as well as growing Covid-19 cases. Additionally, while there were improvements in the jobs segment of the survey, (respondents that viewed jobs as plentiful rose, while hard-to-get eased) it still remains well below pre-pandemic levels. The resulting impact is likely to weigh on consumer spending in the coming months as a result, and will likely add to the already expected pressure on Q4 GDP in the US. Fiscal aid is likely to have the most positive impact on spending, followed by the return to at least some semblance of pre-pandemic conditions via a vaccine.

The Bank of Canada (BoC) is set to makes its decision on monetary policy today, but we expect only a hold from the central bank. Economic conditions in Canada continue to remain well below ideal, but its recovery has mostly been stronger-than-expected. This will remove any urgency by the BoC to ease policy any further. We expect some optimism from policymakers today, with an upward revision to its forecasts to reflect the better-than-expected data. That said, the BoC is likely to continue to reiterate its dovish stance to help support the economy as a result of significant uncertainty regarding Covid-19, the US elections and weak oil prices. We expect little changes to the Canadian dollar as a result, with a slight downside bias on the Governor Tiff Macklem's post-meeting press conference.


Safe haven assets closed the day broadly higher, a signal that investors were turning towards some risk averse assets. Gold and silver both inched slightly higher. The Japanese yen gained against the greenback and euro. US Treasuries gained across the board, with benchmark 10-year yields slipping 3.3bps to 0.77%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.31% +5.91 1,907.99
Silver +0.38% +0.09 24.37
USD/JPY -0.40% -0.42 104.42
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.4bps 0.15%
10-Year -3.3bps 0.77%
30-Year -3.8bps 1.55%
*Source: Bloomberg

Oil futures advanced on Tuesday following two sessions of losses as traders priced in the closure of 49.5% of oil production in the US Gulf Coast in preparation for Storm Zeta. But gains were short-lived as oil futures reversed gains early on Wednesday in Asia thanks to a weekly report from American Petroleum Report showing a 4.58 million build up in US crude oil inventories last week. The report also showed gasoline inventories rising while distillate supplies dipping. Traders will likely keep a close watch on the official report from the US Energy Information Administration (EIA) later today in two areas, namely the overall crude stockpiles and distillate inventories. If the non-official report is true, then it would a sixth straight week of decline in distillate inventories, a potentially more bullish signal for crude oil prices. Still, crude oil faces significant headwinds as a result of Libya's recent restarting of oil production as well as low refinery margins, leading us to believe that there may be more room for downside in the short-term before returning to its gradual recovery trajectory.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +1.83% +0.74 41.20
WTI +2.62% +1.01 39.57
*Source: Bloomberg

In Asia, stocks were trading with a downside bias in the early hours of Wednesday as equities in the region tracking losses in the US. The Nikkei, KOSPI were trading in the red while the ASX200 had managed slight gains in the early hours of Wednesday's trading session. Futures tracking major indices in the US were trading well into the negative region as of 9.10am (GMT +8), indicative that risk aversion may be here to stay for the day.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.50% -116.62 23,369.18 9:00:20 AM
KOSPI -0.13% -3.10 2,327.74 9:20:20 AM
ASX200 +0.09% +5.38 6,056.40 9:20:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.51% -138.00 27,227.00 9:10:15 AM
US Futures -0.53% -18.00 3,365.00 9:10:17 AM
Nasdaq 100 Futures -0.45% -51.00 11,537.00 9:10:15 AM
*Source: Bloomberg

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

  • US Oct 23rd Mortgage Applications (MBA) (7pm)
  • BoC Monetary Policy Decision/Statement (10pm)
  • BoC Governor Tiff Macklem Post Decision Press Conference (11.15pm)

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

  • MasterCard (9pm)
  • Boeing (10.30pm)
  • Gilead Sciences (4.30am)
  • Visa (5am +1)