Wednesday, November 11, 2020

Asia Times: Big Tech continues to weigh on markets; EU leaders agree on 1.8 trillion-euro long-term spending plan

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  • Dollar
  • Gold
  • Yen
  • Euro
  • Stocks
  • Oil

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Market Recap: Big Tech continues to weigh on markets; EU leaders agree on 1.8 trillion-euro long-term spending plan

Major indices in the US were mixed on Tuesday, as tech added to losses while most cyclical stocks continued to climb higher as markets better priced in the longer-term impact of a potential vaccine. Both the Nasdaq and the S&P500 were weighed down by tech while the Dow managed to add to gains thanks to a 6% surge in Boeing’s stock. Positive vaccine trial data earlier in the week from Pfizer likely extended its impact on the stock market, while investors mostly ignored the political risk as Donald Trump continued his attacks on the electoral process. While investors may be pricing in the long-term impacts of a successful vaccine for the global economy, short-term headwinds look increasingly likely to materialise as Covid-19 cases in the US and consequently increased hospitalisations, may add to pressure on local state governments to enforce stricter mobility restrictions.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.90% +262.95 29,420.92
S&P500 -0.14% -4.97 3,545.53
Nasdaq -1.37% -159.93 11,553.86
*Source: Bloomberg

Energy led gains among S&P500 sectors, while mega cap tech shares weighed the most on the index. Interestingly, companies that were most impacted by the surging Covid-19 cases in the US in the short-term, which includes airlines and cruise liners, reversed part of their gains from Monday. This could be a signal that there are at least some profit-taking on mounting short-term concerns from the surging Covid-19 cases. Still, the outperformance of small-cap indices showed that valuations that have diverged over the past months are reversing that trend as we get closer to a vaccine for the virus. We expect this convergence to continue, but at a slower pace due to the climbing risk of added lockdown restrictions, the delay in fiscal stimulus from the US federal government, and distribution concerns for an eventual vaccine.

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The dollar traded mixed against the basket of G10 currencies on Tuesday. But, low-risk currencies continued to trade near the bottom of the group as investors take on additional risk to take advantage of mispricing. The euro fell flat on the day despite drawing some momentum earlier in the trading session from the spill over effects of positive vaccine developments. This drop was likely due to anticipation for a large long-term stimulus plan for the bloc which amounts to 1.8 trillion euros, after EU negotiators came to an agreement on Tuesday. The deal now has to go through the European Parliament for approval. Once passed, the first round of pre-financing is expected to be paid out in the first half of 2021 and will amount to about 10% of the funds. Spain and Italy are expected to be the biggest beneficiaries of the EU’s recovery fund.

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Safe haven assets mostly extended its decline as risk appetite grew in the market. Gold and silver inched slightly higher as both metals normalised some of the sharp losses experienced on Monday. The yen inched higher against both the euro and dollar, but in our view is more likely to be profit taking on short positions after Monday's dive. Additionally, the yen may have experienced some support from the surging Covid-19 cases in the US, UK and EU as well. US Treasuries fell across the board, with benchmark 10-year yields adding 3.6bps to 0.96% as it inches closer towards the 1.00% mark.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.77% +14.28 1,877.32
Silver +0.53% +0.13 24.23
USD/JPY -0.08% -0.08 105.30
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +1.0bps 0.18%
10-Year +3.6bps 0.96%
30-Year +3.3bps 1.74%
*Source: Bloomberg

Oil futures advanced on Tuesday as vaccine hopes continued to buoy oil prices to reach a two-month high. Increasing long positions due to traders pricing in a potential delay to OPEC+'s scheduled production hikes in January may have also helped push oil prices higher. Reports of record inflows into short positions in ICE Brent contracts coming into this week may have also helped drive crude oil prices thanks to short-covering given that active Brent crude oil contracts has risen 9.54% over the past two days. That being said, oil traders and investors should still take into consideration the headwinds for oil markets in the short-term. While news of Pfizer's early phase three trial data was a positive sign for long-term energy demand, crude oil prices are likely to still have its upside limited in the short-term as the EU and UK continue to face lockdown restrictions. Additionally, added production from Libya and the increasing risk for the US to move into stricter lockdowns may start to be reflected in crude oil prices as well.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +2.85% +1.21 43.61
WTI +2.66% +1.07 41.36
*Source: Bloomberg

Stocks in Asia were trading higher on Wednesday morning as the region likely continued to benefit from increased capital flows into the market. The Nikkei, KOSPI and ASX200 were all trading higher in the earlier hours of Wednesday's trading session. Futures tracking major indices in the US were mixed, but was showing a larger skew towards the downside as of 9.10am (GMT +8).

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +1.18% +296.19 25,201.78 9:00:50 AM
KOSPI +0.66% +16.21 2,469.04 9:20:50 AM
ASX200 +1.21% +77.77 6,418.30 9:20:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.11% -33.00 29,286.00 9:10:52 AM
US Futures -0.10% -3.50 3,537.50 9:10:53 AM
Nasdaq 100 Futures +0.01% +0.75 11,619.00 9:10:54 AM
*Source: Bloomberg

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

  • RBNZ Monetary Policy Decision/Statement (9am)
  • RBNZ Governor Orr Post-Meeting Press Conference (10am)
  • Japan Oct Machine Tool Orders (P) (2pm)
  • ECB President Lagarde Speaks at ECB Annual Forum (9pm)

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

  • Tencent Holdings (8pm)
  • Walt Disney (5.30am +1)
  • Applied Materials (5.30am +1)