Tuesday, December 8, 2020

Asia Times: Stocks pares gains on virus concerns; Boris Johnson heads to Brussels to break Brexit deadlock

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

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Market Recap: Stocks pares gains on virus concerns; Boris Johnson heads to Brussels to break Brexit deadlock

Tech-heavy indices in the US advanced on Monday while the S&P500 and DJIA declined, normalising the strong gains seen over the past week. Virus concerns likely also overshadowed some of the optimism that dominated markets last week after Anthony Fauci issued a warning that the Christmas season may see a spread worse than that of Thanksgiving as the holiday is longer on Monday. Another potential delay to lawmakers deciding on the US$908 fiscal aid package likely also resulted in the larger shift towards safer sectors on Monday after it was reported that the House will vote on a one-week stopgap to avert a December 11th shutdown to have more time to deliberate on fiscal spending.

Indexes Daily Change (%) Net Change Closing Price
Dow -0.49% -148.47 30,069.79
S&P500 -0.19% -7.16 3,691.96
Nasdaq +0.45% +55.72 12,519.95
*Source: Bloomberg

A strong skew towards safety was Monday's theme in equities as communications, utilities and technology firms led gains in the S&P500. Energy fell the most as markets are likely paring back on some of their positions following the 5% gain last Friday. Small-cap indices were also experiencing a down day, signalling that profit-taking along with increased concerns on the short-term economic impact that a strained health care system will have in the US. VIX futures spiked up 2.45%, the most since November 20th. The fear gauge remains at the lower end of its post-pandemic trading range, however.

In company news, Airbnb and DoorDash both boosted the price range of its planned IPO that is expected to be on Wednesday in the US this week. Airbnb is now expected to offer its shares for US$56 to US$60, up from the previous price range of US$44 to US$50. The new pricing boosts the home rental company’s potential valuation to a top end of US$42 billion. In tech, Apple is reportedly developing new iterations of its M1 processors that are aimed at competing with the higher end of the CPU spectrum to power its line of Mac Pros and iMacs as well as the top-end versions of MacBook Pros. Important to note is that while the report's cites people familiar with the matter (non-official) as its sources, it is likely true since the Apple M1 chip was viewed as successful. It is also the next logical step forward as the iPhone maker replaces its computing line-up with its own silicon to move towards deeper vertical integration within the company. The largest caveat to this is likely the use of x86 programs in machines using the new ARM-based M1 chip, which will likely still face hurdles in the short-term especially since a number of developer tools such as Docker, VirtualBox, Adobe's Creative Suite as well as compilers has yet to natively support the processor. Apple's shares rose 1.23% on Monday, while Intel's dipped 3.43%.

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The G10 currency basket was mixed against the dollar on Monday with sterling leading losses after weakening on the back of Brexit talks reaching a deadlock. Brexit talks appeared to hit another stalemate on Monday after officials signalled that the likelihood of an agreement remains low with both sides remaining far apart on the same key issues that has prevented a deal thus far. British Prime Minister Boris Johnson will now travel to Brussels to hold in person talks with European Commission President Ursula von der Leyen aimed at resolving the disagreements regarding the trade deal. Signals that a no-deal Brexit is becoming increasingly prominent, the latest being Irish Foreign Minister Simon Coveney remarks that some countries in the EU are becoming "resigned" to the possibility of a hard Brexit with the UK and shifting focus towards contingencies in the event of that. Political compromise is likely the next step for Brexit talks, with negotiators unlikely to make further progress on talks. This would put the possibility of a deal being discussed during the European Council meeting that is set for December 10th to 11th this week.

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The safety trade was highlighted in the safe haven space as well, as markets likely take a step back from the surge in valuations over the recent weeks. Gold and silver both advanced, while the yen gained against both the dollar and euro. US Treasuries surged across the board, with benchmark 10-year yields retreating 4.3bps to 0.92%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +1.30% +23.87 1,862.73
Silver +1.24% +0.30 24.49
USD/JPY -0.12% -0.12 104.05
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -1.0bps 0.14%
10-Year -4.3bps 0.92%
30-Year -5.5bps 1.68%
*Source: Bloomberg

Oil pared gains as well on the broad market shift to safety. With an OPEC+ decision out of the way, the next catalyst for crude oil will likely be fiscal spending in the US as well as the narrative on Covid-19. As a result, the short-term economic concerns surrounding lockdowns in the US and parts of the EU may be starting to play out. However, as oil traders will probably be buying dips on expectations for a vaccine and fiscal spending in 2021, crude oil prices will likely already have a lower limit to losses. Distillate and jet fuel inventories will likely be closely watched as well, as logistical demand for e-commerce and now vaccine deliveries may be the driver for those products.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -0.93% -0.46 48.79
WTI -1.08% -0.50 45.76
*Source: Bloomberg

Stocks were mixed in Asia on Tuesday morning, with the region largely tracking performance and sentiment in the US. The Nikkei and KOSPI were both trading lower while the ASX200 had some gains in the earlier hours of Tuesday's trading session. The Nikkei appears to be recovering however, after final GDP estimates for Japan was revised higher to 5.3% QoQ. Japanese Prime Minister Yoshihide Suga's unveiling of 73.6 trillion-yen worth of stimulus measures is likely to also lend support for the index as the broad Japanese economy remains fragile. Futures tracking major indices in the US were trading lower as of 9.17am (GMT +8), signalling that optimism continues to face pressure.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.25% -67.23 26,480.21 9:07:00 AM
KOSPI -0.85% -23.17 2,722.27 9:27:00 AM
ASX200 +0.29% +19.48 6,694.50 9:26:44 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.21% -63.00 29,994.00 9:17:05 AM
US Futures -0.23% -8.50 3,682.25 9:17:03 AM
Nasdaq 100 Futures -0.19% -23.50 12,572.50 9:17:03 AM
*Source: Bloomberg

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

  • Switzerland Nov Unemployment Rate (2.45pm)
  • Eurozone Q3 Employment Change (F) (6pm)
  • Eurozone Q3 GDP (F) (6pm)
  • Germany Dec Current Situation/Expectations Survey (ZEW) (6pm)