Monday, November 30, 2020

Asia Times: Concerns on AstraZeneca’s trial data rattle markets; a decision from OPEC+ becomes increasingly difficult

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Market Recap: Concerns on AstraZeneca’s trial data rattle markets; a decision from OPEC+ becomes increasingly difficult

US equities advanced on Friday on thinned trading due to the Thanksgiving holiday in the US as defensive sectors helped support major indices in a returns regressive day. Major headlines were mostly absent from the day, and stock movement appeared to be mostly due to portfolio rebalancing with volume across US exchanges only at 6.82 billion shares, compared to the 20-day average of 11.03 billion. European indices may have seen some support from the UK's regulatory body approving AstraZeneca's vaccine candidate for emergency use. However, questions raised regarding AstraZeneca's vaccine has complicated the global outlook after it was announced that the drug maker could be looking to an additional global trial for more clarity on its average 90% efficacy rate that it had published earlier last week. This is after the company and its partner the University of Oxford’s vaccine candidate trials data came under question after the companies initially did not disclose its conclusion that a lower dosage level appeared to be more effective had resulted from a manufacturing discrepancy. Important to note is that AstraZeneca's vaccine will have a greater impact on countries outside of the US due to its lower price and ease of transportation relative to that of Pfizer's and Moderna's.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.13% +37.90 29,910.37
S&P500 +0.24% +8.70 3,638.35
Nasdaq +0.92% +111.45 12,205.85
*Source: Bloomberg

Defensive sectors led gains in the S&P500, but certain cyclical stocks still managed to gain on the day. Energy however, fared the worst on doubt whether OPEC+ will decide to delay its planned production hike set for January in the coming week after Saudi Energy Minister Abdulaziz bin Salman and Russia Deputy Prime Minister Alexander Novak was reported to be hosting informal last minute talks with other OPEC+ Joint Ministerial Monitoring Committee (JMMC) ministers. Among health care sector stocks in the S&P500, shares of Pfizer were among the top gainers, boosted by news regarding AstraZeneca's vaccine candidate.

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Major indices around the globe continued to advance last week, driven mostly by news of vaccines once again as investors ignore short-term risks in favour of future upside. Asian indices Nikkei and KOSPI rose the most on the back of vaccine news as infections in those regions relative to the US and EU had mostly been tame in comparison, although that could be potentially changing with Hong Kong, South Korea and Japan experiencing an uptick in Covid-19 cases. Concerning is the impact that the rising infections will have on the US economy in the short-term as lockdown restrictions are increasingly implemented to reduce the strain on the country's healthcare system. We have already seen some of this impact materialise in the spike in initial jobless benefit claims which suggests increased layoffs. While the negative impact is highly unlikely to reach that seen earlier in the year, investors may note that front facing service industries such as restaurants or travel and leisure is more likely to have additional downside risk in the coming weeks. Safer cyclical stocks that may see lower downside risk and greater upside may be small cap tech manufacturing stocks or diversified small cap indices with higher weightages on financials and infrastructure industries as a result.

Indexes Weekly Change (%) Net Change Closing Price
Dow +2.21% +646.89 29,910.37
S&P500 +2.27% +80.81 3,638.35
Nasdaq +2.96% +350.88 12,205.85
FTSE100 +0.25% +16.13 6,367.58
Dax +1.51% +198.43 13,335.68
Stoxx +1.74% +60.19 3,527.79
Nikkei +4.38% +1,117.34 26,644.71
CSI300 +0.76% +37.48 4,980.77
KOSPI +3.13% +79.95 2,633.45
ASX200 +0.95% +61.88 6,601.05
HSI +1.68% +443.14 26,894.68
STI +1.52% +42.81 2,855.82
*Source: Bloomberg

In contrast, G10 currencies showed forex traders’ risk-off sentiment on Friday. The dollar fell against most G10 currencies with performance largely favouring commodity-linked currencies. The safer Japanese yen and Swiss franc only gained marginally against the greenback in comparison. Sterling weakened against the dollar on Friday after EU's Chief Brexit Negotiator Michel Barnier once again warned that the UK and EU remained apart on key details of a post-Brexit trade deal. Bloomberg had reported that Barnier told diplomats from the EU in a private meeting that he was not optimistic on securing a deal, according to officials with knowledge of the discussions. While this week was supposedly another key informal deadline for a deal, an EU official has signalled that talks could go on for yet another week. Expect more volatility on sterling in the coming weeks as a result, which could potentially last through the first half of December depending on whether a deal can be made. The outlook for a post-Brexit UK will continue to deteriorate as time passes without a deal as companies in the bloc remain uncertain on what to expect in terms of customs operations and tariffs ahead of the December 31st deadline. Important dates to note is December 10th to 11th when EU leaders holds a summit, a scheduled vote on any post-Brexit deal by the European Parliament on December 16th and the formal end of the Brexit transition period on December 31st.

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Safe haven assets remained mixed, but bonds show some investor scepticism. Gold and silver both continued to decline, but the gold-silver cross experienced an uptick back towards the upper range formed back in late September. This could potentially mean a possible mean regression is due in the index in the absence of a catalyst. The yen fell gained against the dollar but fell against most other G10 currencies. US Treasuries gained across the board, pulling benchmark 10-year yields back down to 0.84%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -1.54% -28.01 1,787.79
Silver -3.61% -0.85 22.57
USD/JPY -0.16% -0.17 104.09
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.6bps 0.15%
10-Year -4.4bps 0.84%
30-Year -5.4bps 1.57%
*Source: Bloomberg

Oil futures remained mixed on Friday ahead of an expected decision on planned production hikes set for January. A decision from OPEC+ on January's production number is likely getting increasingly complicated after oil prices rose for four consecutive weeks following the US' presidential election day. Downside was already seen early on Monday morning after OPEC+ ministers were reportedly unable to reach an agreement during the informal meeting with JMMC ministers over the weekend. With most analysts expected production hikes to be delayed by three months to March, there may be significant downside in crude oil prices as a result with oversupply expected to ensue following an increase in output come January. A decision from the bloc is expected to come by Tuesday.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +0.79% +0.38 48.18
WTI -0.39% -0.18 45.53
*Source: Bloomberg

Asian indices were trading mostly lower on Monday morning, returning some of the gains last Friday on the latest developments on AstraZeneca's vaccine candidate. The Nikkei, KOSPI and ASX200 were each trading lower in earlier trading hours of the day. Futures tracking major indices in the US were tilted towards the safer tech sector as well, which could be a potential signal of an elevated risk aversion day.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.10% -25.34 26,619.37 9:17:00 AM
KOSPI -0.22% -5.91 2,627.54 9:37:00 AM
ASX200 -0.61% -39.95 6,561.10 9:36:44 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.32% -95.00 29,778.00 9:27:01 AM
US Futures -0.19% -7.00 3,629.50 9:26:54 AM
Nasdaq 100 Futures +0.16% +19.25 12,276.75 9:26:59 AM
*Source: Bloomberg

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

  • Germany Nov Inflation Rate (Harmonised CPI/CPI) (P) (9pm)