Thursday, December 10, 2020

Asia Times: Tech leads losses in equities as Facebook faces antitrust suit; ECB likely to extend and expand PEPP

  • Dollar
  • Gold
  • Yen
  • Euro
  • Pound
  • Stocks
  • Oil
  • European Central Bank


Market Recap: Tech leads losses in equities as Facebook faces antitrust suit; ECB likely to extend and expand PEPP

A slip in mega tech stocks led losses in US equity markets on Wednesday after Facebook was targeted by regulators in a lawsuit that threatens to break up the social media giant’s products. The lack of tangible positive progress on fiscal stimulus talks in the US may also have weighed on sentiment through the day despite more optimistic signals from US Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi. The strong divide between lawmakers remain however, with Democrat leadership indicating their preference for the US$908 billion stimulus proposal as a baseline for talks while Republicans lean toward Mnuchin's presented proposal of US$916 billion. This could mean that while progress has been made since before the presidential elections in November, a fiscal spending proposal may only come slightly earlier than expected, i.e. early January 2021 as details continue to be hammered out by lawmakers.

Indexes Daily Change (%) Net Change Closing Price
Dow -0.35% -105.07 30,068.81
S&P500 -0.79% -29.43 3,672.82
Nasdaq -1.94% -243.82 12,338.95
*Source: Bloomberg

Cyclicals supports the broad market while tech and tech-related companies drag the S&P500. Energy, industrials and materials were the only sectors to gain in the S&P500, a sign that markets were still somewhat optimistic on the overall tone of the market, i.e. rotational positioning towards cyclical stocks. In the broad US market, small caps outperformed tech-heavy indices but were mixed against the Dow. VIX experienced a 7.69% spike up to its highest level in the past two weeks. VXN, the volatility index for the Nasdaq surged 12.42% on the slump in tech. FAANG stocks each plunged, with Netflix dropping the most at -3.72% while Alphabet fell the least with -1.89%. Shares of Facebook dipped 1.93% on the day after the social media company was sued by US antitrust officials as regulators look to break up the firm by separating its Instagram and WhatsApp entities. The lawsuit would be the biggest against Facebook, in what appears to be increasing scrutiny from US regulators on Big Tech companies.


The dollar inched higher against most of its G10 peers on Wednesday on cautious optimism in financial markets. Cautious optimism is likely driving financial market participants towards some hedging positions, which include the short-term use of the dollar against a possible correction in equities since the greenback has seemingly formed a new technical low around the 90.50 level in DXY. The dollar may also have benefited from an announcement from the UK to discourage people with significant history of allergies from receiving the Pfizer-BioNTech vaccine after two people had experienced reactions. Market's reaction to this news should however be minimal and short-lived since it is unlikely to materially impact the larger general populations and since it seems to be a normal issue with respect to vaccines as trials tend to not be rolled out to patients with historical allergic reactions to the ingredients found in the vaccine candidate. The Bank of Canada (BoC) kept policy unchanged as expected and reiterated its commitment to support the economy. The Canadian loonie ended flat against the dollar as a result.

Sterling managed to recover against the dollar on Wednesday after a three-day decline as traders speculated on a political compromise being made between British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen. But the British currency later reversed gains in early Asian trading on Thursday morning after talks between von der Leyen and Johnson on Wednesday had ended without a breakthrough. The leaders agreed to continue talks over the next few days despite the major differences remaining, signalling a new informal deadline on December 13th for a firm decision. The probability of a deal remains mostly the same in our view, which leans towards a barebones trade deal as multiple sticking points, including control of fishing waters, continues to elude negotiators.

The European Central Bank (ECB) will decide on monetary policy today, with markets expecting an easing cycle from policy makers after an explicit guidance in its last meeting. We expect the central bank to support an economy battered by the second wave of infections through its Pandemic Emergency Purchase Program (PEPP) and Targeted Long-Term Refinancing Operationg (TLTRO III). The European economy has also materially deteriorated in the time since its last monetary policy meeting, implicitly meaning that sentiment among policy makers on easing policy should not change. An extension for both programs up until the end of 2021 is anticipated, along with an expansion of about 400 billion euros in its PEPP to facilitate its current pace of spending to the end of next year. Markets should be expecting this however, with a likely lower bound of 300 billion euros in expectations for an expansion to the PEPP. This implicitly means that any downside in the euro is more likely to be limited, which coincides with the technical outlook for the EUR/USD pair on the overall weak dollar outlook trade that has been dominating markets. We expect only a slight drop in the currency pair as a result, which will likely serve as a technical correction in the short-term as well before returning to its overall upward trend in the medium-term.


Safe haven assets declined despite a seemingly risk-off tone in equities on Wednesday, signalling that traders may still be bullish on the rotational trade towards riskier assets. Gold and silver both dipped, with the gold-silver cross inching higher. The Japanese yen weakened against the dollar but gained against the euro. US treasuries mostly fell across the board with two-year maturities staying mostly unchanged. Benchmark 10-year yields gained 1.8bps to 0.94% as a result.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -1.66% -31.01 1,839.55
Silver -2.46% -0.60 23.95
USD/JPY +0.07% +0.07 104.23
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.2bps 0.15%
10-Year +1.8bps 0.94%
30-Year +2.2bps 1.68%
*Source: Bloomberg

Oil futures ended Wednesday flat after a turbulent day due to possible dip buying along with a weak crude oil inventories report from the US. The US Energy Information Administration's (EIA) weekly report showed crude oil stockpiles rising 15 million barrels last week, the most since April. Both gasoline and distillate inventories rose as well, cementing the more bearish views from traders that were concerned on the lockdowns of multiple states in the US and parts of EU. The build in stocks seems likely to be driven by the increased lockdown restrictions in more populous cities in the US, and is likely to experience greater pressure on that front as the US' health care system across multiple states remain under pressure. The bright spot for crude oil remains the longer-term outlook for demand with vaccines as well as demand in Asia and Brazil which continues to hold for later dated crude oil futures which has flipped into a backwardation structure.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +0.04% +0.02 48.86
WTI -0.18% -0.08 45.52
*Source: Bloomberg

In Asia, stocks were trading with a more bearish outlook on Thursday which is likely dragged down by sentiment in the US. The Nikkei, KOSPI and ASX200 were each trading lower in the earlier hours of Thursday's trading session. Futures tracking major indices in the US were mixed, with Nasdaq 100 e-mini futures continuing to signal weakness in sentiment for tech stocks.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.38% -102.23 26,715.71 9:13:15 AM
KOSPI -0.51% -13.98 2,741.49 9:33:10 AM
ASX200 -0.57% -38.07 6,690.40 9:33:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.11% +34.00 30,000.00 9:22:37 AM
US Futures +0.09% +3.25 3,667.50 9:23:15 AM
Nasdaq 100 Futures -0.07% -9.00 12,356.25 9:22:56 AM
*Source: Bloomberg

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

  • UK Oct Industrial/Manufacturing Production (3pm)
  • UK Oct GDP (3pm)
  • ECB Monetary Policy Decision/Statement (8.45pm)
  • US Dec 4th/Nov 27th Initial/Continuing Jobless Claims (9.30pm)
  • US Nov Inflation Rate (Core CPI/CPI) (9.30pm)
  • ECB President Lagarde's Post-Meeting Press Conference (9.30pm)