Thursday, November 19, 2020

Asia Times: Equities fall as concerns on surging Covid-19 infections and lack of fiscal stimulus materialises in New York

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


Market Recap: Equities fall as concerns on surging Covid-19 infections and lack of fiscal stimulus materialises in New York

US equities reversed course mid-day on Wednesday as increasing lockdown measures in the US outweighed any virus optimism in the market. Stocks started the day slightly in the green after Pfizer said that it was planning to file for emergency with the US Food and Drug Administration (FDA) regulatory body as soon as this Friday. The announcement came after reports from the drug maker that a final analysis of its phase three trial data showed that its vaccine was 95% effective, which includes being 94% effective in people over the age of 65. No serious safety concerns were observed as well, paving the way to a potential approval from the FDA in the weeks following its planned application. Still, this news was likely already mostly priced into the market due to expectations, causing a reversal in market sentiment on the announcement from New York City Mayor Bill de Blasio that public schools would be temporarily closed after the city hit the 3% positive testing rate threshold. Other notable developments on the virus front in the US includes soaring New Jersey hospitalisations, new emerging virus hot spots in Texas where hospitals are already facing strain, Wisconsin extending emergency orders requiring face masks and overall deaths in the US topping 250,000. The impacts from the lack of fiscal stimulus from the US federal government is also increasingly more evident, with New York City's Metropolitan Transportation Authority announcing that it will have to cut subway and bus services by 40% and commuter rail services by half if federal aid does not come from Washington.

Indexes Daily Change (%) Net Change Closing Price
Dow -1.16% -344.93 29,438.42
S&P500 -1.16% -41.74 3,567.79
Nasdaq -0.82% -97.74 11,801.60
*Source: Bloomberg

S&P500 sectors fell across the board, but value and cyclical sectors still managed to mostly maintain its lead over defensive sectors. Energy stocks fell the most, possibly due to the short-term headwinds for the sector as lockdown restrictions become more likely in many states as hospital strain increases. Tech and tech-related companies remain mostly middle-of-the-pack in the S&P500. Tesla continued to gain, on the back of the announcement of its stock being added to the S&P500. The automaker has advanced 19.25% since the announcement as of Wednesday's close. Boeing's shares started the day surging after the US Federal Aviation Administration (FAA) approved the resumption of the aircraft maker's 737 Max aircraft. After a 20-month grounding, the decision from the FAA will likely pave the way for more regulatory approvals from around the world. However, the decision also comes at a time where no airline is likely to increase orders for any aircraft. Additionally, other investigations from other government bodies including the US Justice Department and the Securities and Exchange Commission has yet to be resolved. Boeing's share reversed gains to end the day more than 3% lower.

Nvidia's shares tumbled more than 2% in after-hours trading on Wednesday in the US as signals that data centre chip sales will slow outweighed its better-than-expected quarter across all metrics. As with other tech and tech-related company earnings, the dip in share price was probably due to expectations at extreme levels due to price performance during the period following the onset of the pandemic. The chip maker beat analysts’ estimates for both the reported and forecasted quarter. Most recent quarterly earnings showed data centre chip sales beating estimates for the quarter but at a slower pace than the previous quarter, signalling that strong growth is starting to ease in that space. Additionally, CFO Colette Kress' warnings that a big order in the last quarter booked by Mellanox, a recent acquisition of Nvidia, will not recur in the current period suggested that data centre chip sales will likely decline in the coming quarter. Still the chip maker forecasted a better-than-expected revenue for Q4 2020 at US$4.80 billion with error of 2%, beating estimates for US$4.41 billion.


In contrast, the foreign exchange market was in a risk-on mood on Wednesday, with every G10 currency aside from the euro gaining against the greenback. The Norwegian krone gained the most, alongside the New Zealand dollar, in a sign that traders may still be bullish on commodity-linked currencies. The Japanese yen continued to gained against most G10 currencies as well, signalling that risk aversion is still present with investors using the safe haven as a possible hedge against short-term downside while taking on increased risk on speculation for bigger upside in the long-term. Another bearish signal for the dollar is Invesco's DB US Dollar Index Bullish Fund's assets under management shrinking US$68 million on Monday in its biggest single-day outflow in a month. The fund's AUM has plunged to US$337 million from its peak of US$1.04 billion in April, probably due to increasing bearish views on the greenback resulting from unprecedented levels of fiscal and monetary stimulus.


Safe havens were mixed on Wednesday, as markets traded on sentiment of the trade-off between short-term virus concerns and long-term vaccine impacts. Gold and silver both fell, with the gold/silver cross holding near the bottom of a tight range that was formed late September. The yen strengthened against both the dollar and euro. US Treasuries were mixed, with benchmark 10-year yields rising 1.3bps to 0.87%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.43% -8.14 1,872.24
Silver -0.63% -0.15 24.34
USD/JPY -0.36% -0.37 103.82
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.4bps 0.17%
10-Year +1.3bps 0.87%
30-Year -0.6bps 1.60%
*Source: Bloomberg

Oil futures advanced on Pfizer's progress on its vaccine candidate and a smaller-than-expected build in US crude oil stockpiles last week. The US Energy Information Administration (EIA) reported an increase of 769,000 barrels last week, along with an increase in gasoline and decline in distillate inventories. The continued drop in distillates was likely taken as a more robust sign that the economic recovery is on track despite virus concerns, alleviating some of that downward pressure from New York's announced school closure later that day. The weaker dollar likely also helped with gains in crude oil prices. Still, energy demand faces headwinds moving forward, with expectations for motorway traffic in the US during the Thanksgiving weekend to only be slightly above half of that last year according to a survey from GasBuddy. Lockdowns in the US, EU and UK is likely to also to continue to be priced in for closer dated futures as well.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +1.35% +0.59 44.34
WTI +0.94% +0.39 41.82
*Source: Bloomberg

Stocks in Asia look set for losses on Thursday as virus concerns from the US are spilling over into the region. Additionally, Japan reporting a record number of new Covid-19 cases on Wednesday is likely to add to sentiment that the country’s risk of a surge in Covid-19 cases is increasing. Markets will likely be watching a combination of positive testing rates along with tests per capita and daily Covid-19 cases for the country for signs of an uncontrollable outbreak. The Nikkei, KOSPI and ASX200 were each trading lower in the earlier hours of Thursday's trading session. Futures tracking major indices in the US were also in the red as of 8.57am (GMT +8), signalling that pessimism and risk aversion may continue to be reflected in stock prices in the short-term.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.59% -151.18 25,576.96 8:58:00 AM
KOSPI -0.16% -4.14 2,541.50 9:18:00 AM
ASX200 -0.20% -13.10 6,518.00 9:17:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.07% -22.00 29,369.00 9:07:57 AM
US Futures -0.13% -4.50 3,560.25 9:07:57 AM
Nasdaq 100 Futures -0.19% -23.75 11,873.25 9:07:57 AM
*Source: Bloomberg

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

  • ECB President Lagarde in European Parliament Hearing (4pm)
  • US Nov 13th Initial Jobless Claims (9.30pm)
  • US Nov 6th Continuing Jobless Claims (9.30pm)
  • US Nov Business Outlook (Philadelphia Fed) (9.30pm)

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

  • Macy's (9pm)
  • Intuit (5.30am +1)