Monday, November 9, 2020

Asia Times: Stocks surge as networks declare Biden the winner over the weekend; control of Senate may only be known in January

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

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Market Recap: Stocks surge as networks declare Biden the winner over the weekend; control of Senate may only be known in January

Stocks in the US traded relatively mute on Friday as uncertainty continued to put downward pressure on investors sentiment as the world waited on the outcome of the US presidential elections. The market's wait-and-see approach was appeared to be barely impacted by economic data as well, even as NonFarm payroll data for October grew more-than-expected in October. Unemployment in the US fell to 6.9% last month from 7.9% in September, lower than economists’ forecasts of 7.6%. While the US economy appears to extend its recovery, investors should note that the growth in payrolls is the slowest since the recovery started in May, which is a signal that more fiscal stimulus is needed before the recovery in the labour market starts to drop off significantly faster.

Joe Biden declared the winner of the presidential elections over the weekend. Expect more volatility on market open today after several media networks declared Biden the winner of the presidential elections on Saturday with the former vice president projected to win Nevada and Pennsylvania. Georgia has ordered a recount, which could lead to a period of some lingering uncertainty before we get an official outcome. We expect markets to continue to price in a Joe Biden presidency, but we may see some contrasting cross sector movements this week. Important to consider is Biden's vocal criticism of US President Donald Trump's management of the Covid-19 pandemic in the US, a signal that the stringency index in the US is likely to see an increase when Biden comes into power, i.e. an increase in mobility restrictions. Lockdowns, while unlikely to reach the extent of earlier in the year, looks probably to come into effect in at least several states to curb the spread of the virus. This may lead to a shift back into sectors that benefit from stricter restrictions. Additionally, investors are more likely to start to pricing in the stalling of fiscal spending in the US until at least January thanks to a double runoff election for the two Senate seats in Georgia, which will only happen in January. Assuming Republicans hold onto their lead in the Senate race in Alaska and North Carolina, Democrats will need to win both runoff elections to win control in a 50-50 split.  While there may be some uncertainty on whether Trump will concede defeat, Republicans appear to be distancing themselves from him, which in our view, may be a signal that downside risk may be mostly mitigated in this regard.

Indexes Daily Change (%) Net Change Closing Price
Dow -0.24% -66.78 28,323.40
S&P500 -0.03% -1.01 3,509.44
Nasdaq +0.04% +4.30 11,895.23
*Source: Bloomberg

Sector performance was mostly muted, with energy stocks leading losses in the S&P500. Energy stocks were likely suffering from both the uncertainty surrounding the US Senate as well as Biden's lower propensity to support the oil producing sector of the US. Cyclical sectors also suffered from the potential lack of fiscal stimulus in the US until at least early next year. In contrast, lower risk sectors were the top performers in the broad market and within the S&P500 on Friday, with the Dow and smaller cap indices underperforming the S&P500 and Nasdaq.

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Major indices around the world surged across the week as investors priced in reduced political tension across the world with a Biden presidency. A reduction in overall uncertainty likely also positively impacted risk assets. US major indices had its best weekly gain since April, while EU indices had its best since June. Both VIX and VXN has returned back to pre-election volatility levels, signalling that the magnitude of movements in equities is unlikely to reach last week's levels in the coming weeks. That said, both volatility indices remain at elevated levels which is indicative of the pandemic's extended impact on risk assets. Expect investors to shift their focus back on the surging Covid-19 cases in both the US and the EMEA region this week as political risk takes a backseat with the bulk of uncertainty resulting from the US presidential elections largely subsiding.

Indexes Weekly Change (%) Net Change Closing Price
Dow +6.87% +1,821.80 28,323.40
S&P500 +7.32% +239.48 3,509.44
Nasdaq +9.01% +983.64 11,895.23
FTSE100 +5.97% +332.75 5,910.02
Dax +7.99% +923.54 12,480.02
Stoxx +8.31% +245.84 3,204.05
Nikkei +5.87% +1,348.10 24,325.23
CSI300 +4.05% +190.39 4,885.72
KOSPI +6.59% +149.35 2,416.50
ASX200 +4.43% +262.60 6,190.18
HSI +6.66% +1,605.55 25,712.97
STI +6.39% +154.84 2,578.68
*Source: Bloomberg

The dollar fell against every G10 currency save the Australian and Canadian dollar on Friday. The Australian dollar likely faced downward pressure on the day as a result of earlier reports last week citing people familiar with the matter suggesting that China's government had ordered a halt to imports of Australian products which include key products such as coal and copper ore to begin last Friday. Traders were likely speculating that the relationship between China and Australia would continue to deteriorate, which would put increasing pressure on the Australian economy as a result of China's strong positioning as Australia's top trading partner. We may continue to see tensions between the two countries remain at current levels as a result of political uncertainty in the US since while Biden is expected to take a slightly less hostile stance against its allies and possibly China relative to Trump, Australia is more likely to adopt a wait-and-see approach before deciding on its future relationship with China. G10 currencies were trading higher against the dollar on Monday morning in Asia, as traders were likely taking on increased risk after Biden was declared the winner of the presidential elections by several networks over the weekend.

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Safe haven assets mostly underperformed on Friday, although some benefitted from the declining greenback. Gold, silver and yen benefitted from the weakening dollar instead of increased risk. The Japanese yen also fell against the euro and most other G10 currencies. US Treasuries retreated broadly across the spectrum. Benchmark 10-year yields rose 5.6bps to 0.82% as a result.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.09% +1.69 1,951.35
Silver +0.94% +0.24 25.61
USD/JPY -0.14% -0.14 103.35
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.8bps 0.15%
10-Year +5.6bps 0.82%
30-Year +7.6bps 1.60%
*Source: Bloomberg

Oil futures dived on Friday following concern on what a US government gridlock with a Biden presidency may mean for US oil prices. The continued surge in Covid-19 cases in both the US and EU is likely also weighing on crude oil prices as concerns for demand resurface in the market. Additionally, the renewed possibility for stricter mobility restrictions in the US with a Biden presidency is likely putting downward pressure on oil prices as well. Expect oil to face more pressure this week as headwinds for crude oil prices in our view is likely to materialise from weaker expectations of a fiscal spending bill in the US before the end of the year, while demand concerns get fully priced into oil prices. Still, the longer-term prospects for oil in our view looks positive, since the acceleration in a switch towards renewable energy in the US could potentially be slower with the control of the Senate still in question. The prospects for a delay to OPEC+'s planned production hikes in January is growing as well, and could be reflected in crude oil prices closer in December.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -3.62% -1.48 39.45
WTI -4.25% -1.65 37.14
*Source: Bloomberg

Asian stocks were surging early on Monday as investors in the region priced in a Biden presidency. Asian stocks are likely to benefit the most from reduced geopolitical tension and a possible deceleration in deglobalisation. Expectations for increased value trades may also benefit Asian stocks. The Nikkei, KOSPI and ASX200 were each trading upwards of 1.5% during early trading hours on Monday morning. Futures in the US were trading upwards of 1% on Monday morning as well, as investors' risk appetite grew on reduced political uncertainty.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +1.69% +419.27 24,744.50 8:52:35 AM
KOSPI +1.71% +41.99 2,458.49 9:12:30 AM
ASX200 +1.70% +107.02 6,297.20 9:12:15 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +1.18% +336.00 28,541.00 9:02:35 AM
US Futures +1.39% +49.50 3,550.25 9:02:35 AM
Nasdaq 100 Futures +1.94% +239.00 12,314.00 9:02:35 AM
*Source: Bloomberg

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

  • Germany Sept Trade Balance (3pm)

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

  • SoftBank (2pm)
  • McDonald's (9.30pm)
  • Beyond Meat (5.30am +1)