Friday, November 13, 2020

Asia Times: Stocks dip as central bankers echo sentiment on Covid-19 and vaccine developments

Tags
  • Dollar
  • Gold
  • Yen
  • Stocks
  • Oil
  • US earnings' season
  • Federal Reserve

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Market Recap: Stocks dip as central bankers echo sentiment on Covid-19 and vaccine developments

Wall Street stocks broadly slumped on Thursday as investors continue to price in the growing risk of Covid-19 lockdown restrictions in the US. This sentiment was reinforced by central bankers during a panel discussion with Fed Chair Jerome Powell, European Central Bank (ECB) President Christine Lagarde and Bank of England Governor Andrew Bailey at the ECB's Annual Forum event. All three central bankers shared the sentiment that while vaccine developments are positive, it is still too premature to be overly optimistic due to the short-term virus concerns in the US, UK and EU. Powell was more direct in his outlook for the US as well, viewing the surge in Covid-19 cases in the US as the main risk to the US's economic recovery, especially in the coming months.

Indexes Daily Change (%) Net Change Closing Price
Dow -1.08% -317.46 29,080.17
S&P500 -1.00% -35.65 3,537.01
Nasdaq -0.65% -76.84 11,709.59
*Source: Bloomberg

S&P500 sectors dipped across the board as a result, with cyclical sectors declining the most for the second trading day in a row. Safer sectors fell the least, similar to what we saw earlier during the year when Covid-19 cases was spiking up. Small cap indices underperformed big cap stocks for the second day in a row. Both the VIX and VXN spiked up as volatility grew thanks to pandemic concerns. While markets seem to be re-pricing in a more realistic reflection of the impact that the positive vaccine developments into stock prices, investors should note that multiple other experimental vaccines other than Pfizer's are at the phase three stage as well. This would therefore imply that while short-term downside may pressure cyclical sectors, there may be a higher floor to valuations in comparison to the slump that was seen earlier in earlier drops.

In company news, shares of Disney surged more than 3% after reporting better-than-expected losses and subscriber growth for the quarter. The entertainment giant reported a loss of US$0.20 a share, beating estimates for a US$0.73/share loss by analysts. Revenue dropped less than expected as well. The highlight however was a surge in Disney+ paid subscribers to 73.7 million, well above the 65.5 million estimate that analysts put out. As expected, revenue from its parks continued to suffer albeit at a slower pace with a US$1.1 billion operating loss. But investor sentiment was likely boosted by Disney World's increased capacity to 35% and bookings for the current quarter already at 77%. Dividends have also been paused, likely to reinvest more resources into its streaming services and should be taken as a positive sign by investors. Positive vaccine developments are likely to help boost the outlook for the company as well, as demand tailwinds may help the company recover in 2021 if a vaccine is able to reach widespread adoption.

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The dollar was mixed against G10 currencies on Thursday, but a strong skew towards safer currencies in comparison to Wednesday was seen. The Japanese yen along with the Swiss franc were among the only currencies to gain against the greenback. The euro gained as well, likely on the back of the weaker economic outlook from Powell and unwinding of short-positions after EUR/USD hit the 50-day moving average on Tuesday and Wednesday. Weaker-than-expected economic data in the UK likely put pressure on sterling, as industrial and manufacturing production grew only marginally during the month of September. Brexit negotiations probably also played a role in the downward pressure on sterling as little progress was seen on that front despite the next European leaders’ summit on November 19th growing closer.

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Safe haven assets were mostly higher on Thursday, reflecting the general risk-off market sentiment. Gold and Silver both advanced. The Japanese yen strengthened against both the dollar and the euro. US Treasuries rose across the board after the cash Treasury market reopened following the Veterans Day holiday. Benchmark 10-year yields plunged 9.4bps as a result to 0.88%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.59% +11.10 1,876.83
Silver +0.02% +0.00 24.28
USD/JPY -0.28% -0.30 105.13
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.4bps 0.18%
10-Year -9.4bps 0.88%
30-Year -10.3bps 1.64%
*Source: Bloomberg

Oil futures inched lower as well, as crude oil demand is expected to face pressure from added lockdown restrictions in the EU and UK, as well as the growing risk that the US may move towards the same direction. Powell's remarks on the growing risk of the surging Covid-19 cases and the marginal impact of vaccine developments in the short-term likely rattled markets as well. The weekly report from the US Energy Information Administration (EIA) did little to support prices as well after showing a 4.28-million-barrel increase in US crude oil stockpiles last week. Despite that, there were some bright spots in the EIA's weekly report. Gasoline and distillate inventories both declined with implied demand for distillates trickling back higher to a 5-year average. We expect markets to now focus on possible announcements of lockdown restrictions in the US, OPEC+'s decision on planned production hikes for January in couple of weeks and more vaccine news as drivers for crude oil prices in the short-to-medium-term.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -0.62% -0.27 43.53
WTI -0.80% -0.33 41.12
*Source: Bloomberg

Stocks in Asia were trading lower on Friday morning as investors in the region were likely pricing in the impact of potential lockdowns in the US. In our view, this impact is more likely to be smaller in comparison to the western hemisphere since mobility in this region is recovering at a quicker rate due to the relatively low count of Covid-19 cases across multiple countries. The Nikkei, KOSPI and ASX200 were all trading lower however, in the early hours of Friday's trading session. The Nikkei is likely to show more downside as demand for the yen returns thanks to its safe haven properties. Futures tracking major indices in the US were trading mixed, with a positive skew towards Nasdaq 100 futures as of 9.14am (GMT +8). This is likely another signal that investors remain cautious as the pandemic intensifies concerns in the US.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.84% -211.82 25,309.06 9:04:20 AM
KOSPI -0.35% -8.67 2,466.95 9:24:20 AM
ASX200 -0.47% -30.22 6,388.00 9:24:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.09% -27.00 28,965.00 9:14:20 AM
US Futures -0.03% -1.00 3,531.50 9:14:21 AM
Nasdaq 100 Futures +0.21% +24.50 11,844.50 9:14:21 AM
*Source: Bloomberg

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

  • Eurozone Q3 Employment Change (P) (6pm)
  • Eurozone Q3 GDP (P) (6pm)
  • US Nov Consumer Sentiment Index (U. of Mich) (P) (11pm)