Wednesday, November 25, 2020

Asia Times: Dow soars past 30,000 while USD declines as markets enjoy a rally on the back of increased certainty in the US

Tags
  • Dollar
  • Gold
  • Yen
  • Stocks
  • Oil

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Market Recap: Dow soars past 30,000 while USD declines as markets enjoy a rally on the back of increased certainty in the US

US equities hit new highs on Tuesday as political certainty helped boost optimism further in the market. The rally came as the General Services Administration (GSA) formally acknowledged Joe Biden as the winner of the presidential elections on Monday in the US and after Trump's administration signed off on Tuesday to provide Biden with the Presidential Daily Briefing moving forward. This was the clearest sign yet from US President Donald Trump that he has acknowledged Biden as the winner, despite being vocal that he has yet to concede. The declaration from the GSA also gives Biden access to current agency officials, briefing books and about US$6 million in funding, allowing the transition process to formally proceed. Financial markets across the world was bullish because of the news, sending all risk assets higher during the day. The Dow hit a new milestone as it crossed the 30,000 mark.

Indexes Daily Change (%) Net Change Closing Price
Dow +1.54% +454.97 30,046.24
S&P500 +1.62% +57.82 3,635.41
Nasdaq +1.31% +156.16 12,036.79
*Source: Bloomberg

Sectors gained across the board, with cyclicals leading the S&P500 while the defensive sectors continued to lag. Energy stocks continued to benefit from bullish sentiment on the economy come 2021 as the industry gets a double boost from expected fiscal spending and rising crude oil prices on speculation for oil supply to tighten. The challenge moving forward is whether financial markets can continue to largely ignore the short-term headwinds and remain bullish on industries that are unlikely to experience a quick recovery even with a vaccine. This would include the travel and leisure industry, which is showing signs of overheated valuations as investors become increasingly optimistic on a recovery despite the short-to-medium-term losses that companies in that space is likely to experience (The International Air Transport Association expected losses for air carriers to reach almost US$39 bill in 2021, more than double of its forecast in June and on top of a US$118.5 billion deficit in the current 12 months). While parts of Europe shows signals that daily new Covid-19 cases are slowing, the US still appears to be experiencing an accelerated pace of new infections in its most populous cities including New York, Texas, and California. The strain of the US' healthcare system should also be closely watched for indications of stricter lockdown measures.

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Risk appetite continued to grow in the currency market on Tuesday, with the basket of G10 each gaining against the dollar and other haven currencies. Commodity-linked currencies led gains, with the Norwegian krone rising the most. The reversal in the dollar in favour for other global currencies was likely the result of political certainty and as investors price in the increasing likelihood of a large stimulus package from a Biden administration with Janet Yellen as the new Treasury Secretary. The largest downside risk to this will be on which party gains control of the Senate with the two runoff elections in the Senate in January. Expect more volatility today with the big dump of US economic data ahead of the Thanksgiving holiday on Thursday in the US.

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Safe haven assets tumbles on the surge of risk-on sentiment among market participants. Gold and silver both fell. Gold is now trading close to its 200-day moving average, and its lowest since July as real yields continue to recover thanks to bond pricing. The Japanese yen weakened against every G10 currency. US Treasuries fell across the board as well, pushing benchmark 10-year yields 2.6bps higher to 0.88%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -1.65% -30.27 1,807.59
Silver -1.38% -0.33 23.27
USD/JPY -0.08% -0.08 104.44
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.1bps 0.16%
10-Year +2.6bps 0.88%
30-Year +5.2bps 1.61%
*Source: Bloomberg

Oil futures continues to make new highs on the back of vaccine optimism and now political certainty. Both Brent and WTI are both set for monthly gains upwards of 20% in November. The unofficial weekly report from the American Petroleum Institute (API) may have also helped to buoy oil prices after showing a drawdown in distillate stockpiles. However, US crude stockpiles and gasoline inventories were shown to have increased last week. With more lockdown restriction in the US, gasoline stockpiles are likely to continue to face upward pressure as motorway traffic continues to be impacted by renewed lockdown restrictions. Manufacturing has remained mostly open, which should help to support more declines in distillate supplies. Yellen as Treasury Secretary is likely helping oil prices as well for reasons mentioned above. Still, oil's sensitivity to short-term economics may suggest that the rally could be overdone, which implicitly implies that downside risk is increasing as prices continue to rise. Additionally, the recent gains in crude oil prices may also complicate the upcoming OPEC+ meeting that will decide on potential delays to production hikes scheduled for January, an event that the market has likely been largely pricing in. Markets will likely be looking at the US' official crude oil stockpile report later today, in particular at stockpiles in Cushing, Oklahoma as the storage facility has steadily climbed over past weeks to levels last seen in May.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +3.91% +1.80 47.86
WTI +4.30% +1.85 44.91
*Source: Bloomberg

Stocks in Asia were surging on Wednesday morning, keeping in stride with US equities. The Nikkei was leading gains in the earlier hours of the trading session, likely as the weaker yen is helping to boost the country's export outlook as well. The KOSPI and ASX200 were trading higher on Wednesday morning as well. Futures tracking major indices in the US were well into the green as of 9.08am (GMT +8), implying that optimism may continue to dominate markets today ahead of the Thanksgiving holiday.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +1.87% +499.38 26,664.97 8:58:25 AM
KOSPI +0.60% +15.93 2,633.69 9:18:20 AM
ASX200 +0.79% +52.93 6,697.00 9:18:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.44% +134.00 30,132.00 9:08:26 AM
US Futures +0.45% +16.50 3,649.25 9:08:27 AM
Nasdaq 100 Futures +0.60% +72.50 12,148.00 9:08:29 AM
*Source: Bloomberg

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

  • US Q3 Inflation Rate (Core PCE/PCE) (S) (9.30pm)
  • US Q3 GDP (S) (9.30pm)
  • US Nov 20th Initial Jobless Claims (9.30pm)
  • US Oct Durable Goods (9.30pm)
  • US Oct Inflation Rate (Core PCE/PCE) (9.30pm)
  • US Oct Personal Spending/Income Report (9.30pm)
  • US Nov 20th Crude Oil Stocks Change (EIA) (11.30pm)
  • FOMC Nov Meeting Minutes (3am +1)