Wednesday, December 2, 2020

Asia Times: US stimulus news returns to drive a rally in stocks but the divide among lawmakers in Congress remain

Tags
  • Dollar
  • Gold
  • Yen
  • Euro
  • Stocks
  • Oil
  • ISM PMI

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Market Recap: US stimulus news returns to drive a rally in stocks but the divide among lawmakers in Congress remain

A day of renewed fiscal stimulus spending and vaccine hopes spur another record making day in the US equity market. Both House Speaker Nancy Pelosi and Senate Majority Leader Mitch McConnell each floated their new stimulus proposals in a bid to restart negotiations before the year ends. The announcements from both Pelosi and McConnell came after a report that a bipartisan group of lawmakers from the House and Senate had submitted their own US$908 billion stimulus proposal as a compromise to kick start stimulus talks. While Democrats did not reveal the magnitude of its own proposal, the outline for McConnell's remained mostly similar to his previous US$500 billion proposal that Democrats had blocked. This likely resulted in some renewed optimism in the market for a fiscal spending bill that may have a chance of being passed earlier than expected. Outside of that, Pfizer and BioNTech are looking to obtain regulatory clearance to sell their vaccine to the EU.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.63% +185.28 29,823.92
S&P500 +1.13% +40.82 3,662.45
Nasdaq +1.28% +156.37 12,355.11
*Source: Bloomberg

S&P500 sector data showed some caution was present in the market, as a mix of cyclicals and defensive stocks outperformed the overall index. Energy sector stocks remained at the tail end of the index but traded flat relative to prior trading sessions as markets await a decision from OPEC+ ministers on production hikes. Small cap indices performed mostly in line with major indices as the broad market advanced on the thought that fiscal spending in 2021 coupled with record low rates will likely continue to spur growth in stock valuations. VIX however, edged a touch higher for the first time in the last six trading sessions, a signal that investors may want to keep an eye as the index is signalling that volatility is currently trading at its lowest since February.

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The US dollar weakened against all its G10 counterparts as fiscal stimulus came back to the forefront of headlines in the US on Tuesday. ISM's manufacturing PMI for the US likely had little impact on the greenback as it only slightly undershot expectations at 57.5 for November. Weakness in the PMI report was mostly due to a contraction in employment in the sector, although it appears to be an after effect of the high levels of infections in the US and not slower demand. The overall PMI report was mostly consistent with the economic outlook, i.e. an imbalanced economic recovery but at a slowing pace. Of the industries highlighted by the report, sentiment among respondents in the primary metals, fabricated metal products, machinery and computer & electronic products industries appeared to be the more optimistic ones on demand. The euro gained the most out of the basket of G10, rising to as high as 1.2054, its highest since 2018 before slipping slightly.

The Australian dollar remained mostly unchanged against the dollar on Tuesday relative to other major currencies as the Reserve Bank of Australia (RBA) kept its monetary policy tools mostly unchanged. The central bank noted that recent economic data have been better-than-expected but stopped short of addressing the risk of Australia-China tensions and rising house prices. The continually strengthening Australian dollar may also start to concern the central bank as its policy actions gets outweighed by market optimism and general weakness in the dollar. The RBA continued to forecast that unemployment will remain around 6% at the end of 2022 and reiterated its commitment to keep its official cash rate at current levels until real inflation can be sustained between 2-3%. We maintain our view that the appreciation of the Australian dollar and house prices in Australia is likely to become the key concerns for the central bank as we move into 2021.

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Safe haven assets tumbled on the overall risk-on tone in the market on Tuesday. Gold gained while silver soared, pressuring the gold-silver cross back to the bottom of a range formed in late September. The Japanese yen fell against both the dollar and the euro, as well as all other G10 currencies. US Treasuries dipped, with later dated maturities sharply dropping. Benchmark 10-year yields surged 8.7bps as a result to 0.93%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +2.15% +38.29 1,815.24
Silver +6.00% +1.36 24.00
USD/JPY +0.02% +0.02 104.33
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +1.8bps 0.17%
10-Year +8.7bps 0.93%
30-Year +10.1bps 1.67%
*Source: Bloomberg

Oil futures retreated on Tuesday as uncertainty in the oil market continues as traders await a key decision from OPEC+. A potential surprise uptick in US crude oil stockpiles last week signalled by the American Petroleum Institute's non-official weekly report likely put additional downward pressure on crude oil prices. The report also showed both gasoline and distillate stockpiles increasing. Traders will be looking to the official report from the US Energy Information Administration (EIA) later today for confirmation as a result, as an uptick in supply in the US would be a signal that renewed lockdown restriction in multiple states is starting to show signs of impact on the economy. Markets will also be waiting on a decision from OPEC+ regarding production hikes for January, which is said to come on Thursday.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -0.96% -0.46 47.42
WTI -1.74% -0.79 44.55
*Source: Bloomberg

Asian stocks look mixed on Wednesday morning as normalisation takes over following strong gains seen in stocks in the region on Tuesday following strong manufacturing PMI data from China. The Nikkei and ASX200 were trading lower in the earlier hours of the trading session while the KOSPI advanced. Futures tracking major indices in the US were tilted slightly lower as well as of 9.25am (GMT +8).

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.29% -73.81 26,710.00 9:15:35 AM
KOSPI +0.98% +25.96 2,660.21 9:35:30 AM
ASX200 -0.37% -24.24 6,564.30 9:35:15 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.53% -157.00 29,647.00 9:25:35 AM
US Futures -0.35% -12.75 3,647.75 9:25:36 AM
Nasdaq 100 Futures -0.20% -24.75 12,427.50 9:25:34 AM
*Source: Bloomberg

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

  • US Nov 27th Mortgage Applications (MBA) (8pm)
  • US Nov Private Employment Change (ADP) (9.15pm)
  • US Nov 27th Crude Oil Stocks Change (EIA) (11.30pm)