Monday, November 23, 2020

Asia Times: Oil gains for third week in a row on fading supply concerns; Asia equities advance on Monday morning

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

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Market Recap: Oil gains for third week in a row on fading supply concerns; Asia equities advance on Monday morning

Stocks declined on thinned trading in the US on Friday, as conflicts between the Fed and Treasury along with concerns on increased mobility restrictions in the US due to the spread of Covid-19 weighed on riskier assets. While the impact of the US Treasury's request to withdraw funds on certain Fed emergency lending programs was mostly limited due to its intended use case already being fulfilled, market participants were likely still discouraged by the disparity in remarks from the Fed and US Treasury Secretary Steven Mnuchin. This implicitly would mean that a reduction in speculation that the central bank would be incentivised to do more for the economy in coming meetings likely occurred, resulting in some downward pressure on risk assets. Meanwhile, cases in the US continued to rise signalling that upcoming holiday season sales will likely be negatively impacted as a result.

Indexes Daily Change (%) Net Change Closing Price
Dow -0.75% -219.75 29,263.48
S&P500 -0.68% -24.33 3,557.54
Nasdaq -0.42% -49.74 11,854.97
*Source: Bloomberg

Some risk aversion was present in sector performance on Friday as well. Leading the S&P500 were the more defensive utilities and health care sectors. Tech lagged the index, falling behind the economy-sensitive financials and industrials. Materials did also outperform most other sectors in the S&P500, signalling that bullish sentiment for the economy in a post-vaccine environment is likely still spurring at least some buying of undervalued industries. That being said, cruise liner, airlines, financials and travel-related stocks fell the most in the S&P500 on Friday, returning some of the strong gains that these companies had enjoyed over the last two weeks, indicating that there may have been over-optimism regarding the direct impact of vaccines in the short-term.

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Global indices advanced over the week as vaccine news help spur bullish sentiment across the world. Friday's losses however were enough push the Dow and S&P500 into weekly losses, making them the only two major indices to retreat last week. Asian indices benefitted the most last week, likely due to the more value-oriented nature of stocks in the region in comparison to the US. Major developed countries in the region being able to mostly control the spread of the virus probably also helped boost sentiment that the Asian economy may come out ahead in the short-term. European indices managed to advance over the week, although to a smaller extent in comparison to Asia as countries in the region continue to face downward pressure from renewed lockdown restrictions.

With positive vaccine data from Pfizer and Moderna, markets following the news of vaccines will likely keep their eyes peeled for phase three results from AstraZeneca, Novavax and Johnson & Johnson, since these companies account for most of deals for vaccine distribution in the rest of the world outside of the US. Important to note that while phase three trial data from Pfizer and Moderna have been impressive and are in the process of seeking emergency use authorisation from the US Food and Drug Administration (FDA), there is concerns on availability for the rest of the world due to its high price per dosage (Pfizer and BioNTech agreed to supply the US at US$19.50 a dose; Moderna is charging US$32-39 a dose for smaller deals). In comparison AstraZeneca has committed to not profiting during this crisis by selling at US$4 to US$5 a dose, allowing more lower-income countries to have access to a vaccine (although it has not stated what the price of a dose will be set at post-crisis).

Indexes Weekly Change (%) Net Change Closing Price
Dow -0.73% -216.33 29,263.48
S&P500 -0.77% -27.61 3,557.54
Nasdaq +0.22% +25.68 11,854.97
FTSE100 +0.56% +35.06 6,351.45
Dax +0.46% +60.53 13,137.25
Stoxx +1.04% +35.53 3,467.60
Nikkei +0.56% +141.50 25,527.37
CSI300 +1.78% +86.44 4,943.29
KOSPI +2.39% +59.63 2,553.50
ASX200 +2.09% +133.95 6,539.17
HSI +1.13% +294.68 26,451.54
STI +3.75% +101.62 2,813.01
*Source: Bloomberg

G10 currencies reverses course on Friday, as traders normalised Thursday's price performance. The dollar remained mixed against the basket of G10. The New Zealand and Australian dollars, i.e. commodity-linked currencies with strong correlation to China trade, led the basket in gains on the back of both more bullish sentiment on the APAC region and speculation for increased spending around the world - in particular on infrastructure. Sterling wasn't far behind in gains on Friday as traders speculated for a higher likelihood for a post-Brexit trade deal between the UK and EU after officials from both blocs were relatively upbeat on the chances of a deal. Reports citing people familiar with negotiations also surfaced that a deal could potentially be made towards the end of this week, or more likely on the week of November 30th. Expect more volatility in sterling in the coming week as a result, as fishing and state aid remain the main two hurdles that both sides must resolve before proceeding on a deal.

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Safe haven assets indicated that some risk-off sentiment was present on Friday, as investors continue to weigh between the short-term impacts of renewed lockdown restrictions and the longer-term economic outlook post-vaccine. Gold and silver advanced but remained in its tight range. The Japanese yen fell against the dollar but rose against the euro. US Treasuries advanced across the board, with benchmark 10-year yields declining 0.5bps to 0.82%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.24% +4.45 1,870.99
Silver +0.52% +0.12 24.18
USD/JPY +0.12% +0.12 103.86
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.4bps 0.16%
10-Year -0.5bps 0.82%
30-Year -2.6bps 1.52%
*Source: Bloomberg

Oil futures continued to advance, closing strongly for the third week in a row on the back of hopes of stronger energy demand. Over the past three weeks, Brent and WTI active futures has risen 18.50% and 17.34% respectively. Still, we expect headwinds for oil demand in the short-term, especially in the US as more states renew lockdown restrictions ahead of the holiday season, which is typically would be strong period for energy demand due to increased travelling inter-state. The EMEA area also being under lockdown is likely to continue to weigh on crude oil demand as well, although restrictions in some countries are under consideration to be laxed for the Christmas holidays. That being said, the time spread between the first and fourth month Brent crude oil futures contracts has narrowed the most since the start of July, signalling that traders in the oil market is increasingly bullish on firstly a sharp recovery in crude oil demand in a post-vaccine economy and secondly reduced over-supply on speculation for a delay in production hikes from the OPEC+ coalition.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +1.72% +0.76 44.96
WTI +1.24% +0.52 42.42
*Source: Bloomberg

Asian equities look set for gains to start the week on Monday morning on vaccine and treatment optimism. The US appears to be planning to start vaccinations in as soon as three weeks, as spoken by the head of the US federal program Operation Warp Speed. Over the weekend, Regeneron's antibody cocktail treatment also received emergency use authorisation from the US FDA. But the impact from this development may be downplayed after another drug that was approved earlier for emergency use for treatment, Remdesivir, was recently discouraged for use by the WHO. A commitment from G20 leaders to equal access to testing, treatment and vaccines for Covid-19 across the world is also likely helping buoy sentiment for stocks in the region. Both the ASX200 and KOSPI was trading in the green in early trading on Monday morning, with the KOSPI rising upwards of 1% after exports in the country was reported to have jumped 11.1% in November. Futures tracking major indices in the US were trading higher as of 9.13am (GMT +8), signalling that financial markets may be starting the week on a more positive note.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei - - 25,527.37 -
KOSPI +1.48% +38.36 2,591.86 9:23:50 AM
ASX200 +0.55% +36.03 6,575.20 9:23:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.29% +84.00 29,296.00 9:13:53 AM
US Futures +0.29% +10.50 3,564.75 9:13:47 AM
Nasdaq 100 Futures +0.34% +40.75 11,946.50 9:13:52 AM
*Source: Bloomberg

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

  • Germany Nov Manufacturing/Services PMI (Markit) (P) (4.30pm)
  • Eurozone Nov Manufacturing/Services PMI (Markit) (P) (5.00pm)
  • UK Nov Manufacturing/Services PMI (Markit) (P) (5.30pm)
  • US Oct National Activity Index (Chicago Fed) (9.30pm)
  • US Nov Manufacturing/Services PMI (Markit) (P) (10.45pm)