Wednesday, November 18, 2020

Asia Times: Risk assets backtrack more global leaders note of the short-term risks of surging infections

  • China
  • Dollar
  • Gold
  • Yen
  • Pound
  • Stocks
  • Oil


Market Recap: Risk assets backtrack more global leaders note of the short-term risks of surging infections

Stocks in the US retraced back down on Tuesday as vaccine optimism eased and virus concerns returned to the forefront. Remarks from Fed Chair Jerome Powell noting that rising Covid-19 infections remains the most important near-term risk to the economy likely put downward pressure on risk assets as well. Powell also reiterated cautious optimism on the most recent vaccine developments, highlighting that it is too soon to know its full economic impact. Weaker-than-expected retail sales data for October may have also contributed to reduced optimism in the market, as momentum in consumer spending continues to show signs of slowing. Headline retail sales for October grew 0.3% from September, slower than economists' forecasts for a 0.5% growth but still higher than our own forecast of 0.1%. The highlight of the report was sales from non-store retailers, which showed a strong adjusted growth of 3.1% MoM and 29.1% YoY. In contrast the clothing, and food services and drinking places categories were still more than 10% lower from 2019. With the spike in Covid-19 infections forcing increasingly more states to enforce stricter lockdown measures, we should start to see an even greater slowdown in these categories in the months ahead. The upcoming holiday season may continue to drive sales for non-store retailers, but risk of recovery momentum slowing is present, especially with households wiping out most of the increased savings that resulted from stay-at-home rules and stimulus pay-outs from earlier in the year.

Indexes Daily Change (%) Net Change Closing Price
Dow -0.56% -167.09 29,783.35
S&P500 -0.48% -17.38 3,609.53
Nasdaq -0.21% -24.79 11,899.34
*Source: Bloomberg

S&P500 sectors were largely down on Tuesday with sectors more impacted by the economic cycle and pandemic outperforming while tech and more defensive sectors were trading towards the tail end of the index. Small cap indices continued to outperform large-cap indices as well. In other news, the Nasdaq Golden Dragon China Index underperformed other US-based indices on Tuesday after the US Securities and Exchange Commission (SEC) was reported to be pushing ahead with a proposal that could potentially result in the delisting of Chinese companies on US stock exchanges. According to the report, the issue is with China's refusal to allow the US to review audits for accounts of Chinese companies that trade on US stock exchanges. The proposal is expected to be finalised only during President-elect Joe Biden's term, which would mean that the Democratic successor to current SEC Chairman Jay Clayton will likely come under pressure on this issue when he comes takes over from Clayton at year end.

Walmart's shares dipped 2.01% on Tuesday as a lack of a full-year forecast from the company overshadowed better-than-expected earnings. The world's largest retailer beat expectations for its Q3 results, boosted by strong online sales (79% growth in e-commerce revenue) and increased demand for essentials. Shoppers appeared to be continuing to stock up as well, with average purchases for its US segment soaring 24%. However, little guidance was given regarding the upcoming holiday season as well as forecasts for the next quarter, which analysts were concerned about during the call due to the effects of the pandemic. Additionally, downward pressure on Walmart's stock was likely also subject to Amazon's announcement that it would start selling prescription drugs with the launch of its new digital pharmacy, Amazon Pharmacy. Amazon’s announcement also negatively impacted other pharmacy stocks in the US, contributing to the underperformance of the defensive sector.


The dollar was largely mixed on Tuesday against the basket of G10 currencies, with a stronger tilt towards safe havens. The Japanese yen and Swiss franc were among the top performers in the basket, while commodity-linked currencies suffered a pullback. This was likely a result of concerns of new lockdowns especially as US hospitalisation rates continue to climb to record highs. Sterling was the top performer of the day, probably boosted by speculation for a Brexit deal. Reports citing people familiar with negotiations alluded to a possible breakthrough in post-Brexit trade talks as soon as Monday, but also warned that negotiations could still breakdown. Key issues, including control of fishing waters still separate the two parties from a deal. In our view, incentives of both parties still align in at least the short-term for a trade deal as the pandemic continues to make a large dent into both economies. This should mean that it is likely that we will see additional signs of a deal. However, with sterling making gains back towards a high made in early September, we may see start to see increasing downside potential for the currency due to risk for more delays as both sides use time to pressure each other into a deal. Also, to note is that the longer negotiations drag on, the less time the relevant stakeholders (British customs, firms with trade relations in the EU) will have to implement the necessary operational systems to ensure smooth trade between the two blocs.


Safe haven assets were mostly higher on Tuesday as risk aversion regains traction. Gold and silver fell, continuing its positive correlation to riskier assets. The Japanese yen strengthened against both the dollar and euro. US Treasuries rose across the board, with benchmark 10-year yields falling 4.9bps to 0.86%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.45% -8.57 1,880.38
Silver -1.13% -0.28 24.49
USD/JPY -0.37% -0.39 104.19
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.8bps 0.17%
10-Year -4.9bps 0.86%
30-Year -5.7bps 1.61%
*Source: Bloomberg

Oil futures closed mostly flat on Tuesday in the absence of a concrete decision from OPEC+ on scheduled production hikes for January. Crude oil futures initially dropped on the news, but later regained its footing towards the end of the trading session. This outcome was mostly expected, but recent developments on vaccine was also highlighted in the closing statement for the Joint Ministerial Monitoring Committee's (JMMC) meeting yesterday, suggesting that its outlook has likely improved for the longer-term outlook of crude oil demand. As with other global leaders, the Committee noted that while positive vaccine developments are bullish for the long-term outlook for oil, the resurgence of Covid-19 cases are still impacting oil demand in the short-term.  Traders will now closely watch the upcoming JMMC meeting in about two weeks, where a final decision on production hikes set for January is expected to be made.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -0.16% -0.07 43.75
WTI +0.22% +0.09 41.43
*Source: Bloomberg

Stocks in Asia were trading mixed on Wednesday morning, as investors weigh the rising Covid-19 cases in the US, EU and UK against its own economic recovery in the region. The Nikkei was trading 1% lower, while the ASX200 and KOSPI were positive in the earlier hours of Wednesday's trading session. Futures tracking major indices in the US were trading lower across the board as of 9.10am (GMT +8), signalling that caution may be starting to gain traction in the US market as well.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -1.01% -259.31 25,755.31 9:00:20 AM
KOSPI +0.43% +11.06 2,550.21 9:20:20 AM
ASX200 +0.66% +42.89 6,541.10 9:20:15 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.11% -34.00 29,686.00 9:10:21 AM
US Futures -0.18% -6.50 3,600.25 9:10:17 AM
Nasdaq 100 Futures -0.20% -24.00 11,951.00 9:10:22 AM
*Source: Bloomberg

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

  • UK Oct Inflation Rate (CPI/RPI) (3pm)
  • US Oct Housing Starts (9.30pm)
  • Canada Oct Inflation Rate (CPI) (BoC) (9.30pm)
  • US Nov 13th Crude Oil Stocks Change (EIA) (11.30pm)

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

  • Target (9pm)
  • Nvidia (5.20am +1)
  • Bilibili (9am +1)