Friday, November 20, 2020

Asia Times: S&P500 climbs on reports for aid talks to resume; conflict between the Fed and US Treasury puts pressure on futures

Tags
  • Dollar
  • Gold
  • Yen
  • Pound
  • Stocks
  • Oil

11202020a

Market Recap: S&P500 climbs on reports for aid talks to resume; conflict between the Fed and US Treasury puts pressure on futures

Stocks on Wall Street started Thursday's trading session lower on weak jobless claims data before reversing losses on reports that Congress may resume stimulus talks. Initial jobless claims data rose to 742,000 for the first time after declining for four consecutive weeks as the impact of stricter measures to curb the spread of the virus in the US weighed more heavily on businesses than expected. Stocks faced downward pressure on the report as a result, before reversing losses after CNBC had reported that Senate Minority Leader Chuck Schumer and Senate Majority Leader Mitch McConnell had agreed to resume stimulus talks.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.15% +44.81 29,483.23
S&P500 +0.39% +14.08 3,581.87
Nasdaq +0.87% +103.11 11,904.71
*Source: Bloomberg

Still, tech mostly buoyed the S&P500 for the entirety of the day while energy stocks helped boost the index towards the end of the session after jumping on the back of prospects for resumed fiscal aid talks. Tech and tech-related shares were mostly up during the day, a signal that the sector may be starting to regain some of its footing after largely underperforming in the previous week. Small cap indices still closed the day higher than other major indices, as CNBC's report helped spur another buying cycle in value companies. Small cap indices are also on track to outperform other major indices for the third week in a row.

11202020b

G10 currencies were mixed and relatively muted against the dollar as investors continued to weigh between short-term virus concerns and long-term vaccine bullish views. Weaker-than-expected initial jobless claims data likely rattled traders, putting pressure on some commodity-linked currencies such as the New Zealand and Australian dollar. Sterling lagged the basket of G10 currencies as well but was close to flat despite Brexit negotiations hitting another roadblock. This time, talks were suspended after an EU official involved in negotiations tested positive for Covid-19. Part of the EU's negotiation team will carry on with discussions virtually while in quarantine, while those who did not have contact with the official that tested positive will continue physical talks in Brussels. EU Chief Negotiator Michel Barnier was set to brief EU leaders in Brussels regarding the status of talks later today, but that will now be done by one of his deputies. This may result in some delay in a deal in our view, which was speculated to come as soon as Monday. Officials will likely be moving to work out a deal by Monday, a practical deadline for the EU to have enough time to proceed with translation and for the European parliament to scrutinise.

11202020c

Safe haven assets mostly gained on the day as a result of mostly negative headlines. Gold and silver both fell. The Japanese yen inched higher against the greenback but fell against the euro. US Treasuries fell across the board, with benchmark 10-year yields dipping 4.1 bps lower to 0.83%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.30% -5.70 1,866.54
Silver -1.17% -0.28 24.05
USD/JPY -0.08% -0.08 103.74
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -1.2bps 0.16%
10-Year -4.1bps 0.83%
30-Year -5.5bps 1.55%
*Source: Bloomberg

Oil futures edged lower on Thursday as traders were likely concerned with virus restrictions and the Centers for Disease Control (CDC) urging Americans not to travel for Thanksgiving to keep the spread of the virus under bay. In our view, without a strong fundamental catalyst, gains in crude oil futures appeared to have stalled out as traders continue to price in an imbalanced global economic recovery. Demand in Asia continues to display strength, likely helping to offset some of the weak sentiment for energy demand across the US, UK and EU as lockdown measures gets enforced in those regions.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -0.32% -0.14 44.20
WTI -0.19% -0.08 41.74
*Source: Bloomberg

In Asia, stocks look more likely to close the week slightly in the green as investors in the region weigh between virus concerns and vaccine developments. Important to note that several countries in the region are continuing to keep the spread of the virus under bay, which should help to maintain economic recovery in those parts of the region despite anticipation for a slowdown in the US, EU And UK. This however also suggests that Japan may suffer from both a stronger yen as well as growing risk that the country is experiencing a surge in Covid-19 cases as well. This was mostly reflected in stock prices on Thursday and early Friday. The Nikkei was trading lower, while the KOSPI and ASX200 were inching higher in the early hours of Friday's trading session. Futures tracking major indices in the US plunged in the early hours of Friday's trading session after reports surfaced that US Treasury Steven Mnuchin had asked the Fed for an extension of four of the central bank's emergency lending programs while requesting that five other programs expire as planned on December 31st which would allow lawmakers to re-appropriate US$455 billion and spend that money elsewhere. The Fed later responded that it would prefer that the "full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop of our still-strained and vulnerable economy". Traders were likely rattled by the conflict between the Fed and Treasury Department especially amid the resurgence of Covid-19 cases in the US, forcing downward pressure on sentiment and consequently futures.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.58% -147.27 25,487.07 9:03:35 AM
KOSPI +0.11% +2.72 2,550.14 9:23:30 AM
ASX200 +0.22% +14.67 6,561.90 9:23:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.69% -201.00 29,242.00 9:13:35 AM
US Futures -0.66% -23.50 3,556.25 9:13:34 AM
Nasdaq 100 Futures -0.27% -31.75 11,955.50 9:13:33 AM
*Source: Bloomberg

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

  • PBoC 1-Year/5-Year Loan Prime Rate Decision (9.30am)
  • UK Oct Retail Sales (3pm)
  • ECB President Lagarde Speaks at European Banking Congress (4.15pm)
  • Canada Sep Retail Sales (9.30pm)