Monday, December 14, 2020

Asia Times: Disney’s 13% surge helps buoy indices on Friday; investors to continue to mull over virus and vaccine trade offs

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Market Recap: Disney’s 13% surge helps buoy indices on Friday; investors to continue to mull over virus and vaccine trade offs

US equities ended last week mostly down as markets continued to face uncertainty regarding fiscal spending from US lawmakers. Concern surrounding stricter measures across the nation to contain the spread of Covid-19 and the impasse between Democrats and Republicans on an aid package was the likely reason for the strong declines in major indices, with the S&P500 shedding as much as 1% by mid-day Friday. That said, major indices did reverse most of its losses late into Friday's session after lawmakers had passed a stopgap bill that was signalled to markets earlier last week to avert a federal-government shutdown. This may have helped remove some of the uncertainty as lawmakers get an additional week to negotiate for a fiscal spending bill to be passed before the end of the year.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.16% +47.11 30,046.37
S&P500 -0.13% -4.64 3,663.46
Nasdaq -0.23% -27.94 12,377.87
*Source: Bloomberg

Among S&P500 sectors, safer positioning appeared to be the theme of the day as cyclicals take a breather. Communications and consumer staples topped the index, while industries including airlines and cruise liners ended the day with losses heavier relative to the rest of the index. Shares of Walt Disney was the largest driver of both the S&P500 and DJIA on Friday after experiencing a 13.59% jump on the back of news that the world's largest entertainment company now expects a top end of 260 million Disney+ subscribers by 2024, close to triple that of the upper limit of 90 million subscribers that it previously forecasted. Driven by a surge in demand from stay-at-home restrictions by governments across countries, Disney had already reached 86.8 million subscribers by December 2nd this year, four year ahead of its original timeline. Considering that it has yet to expand in countries across the Asian and EMEA region, as well as its efforts to pour as much as US$16 billion a year by 2024 in content streaming, markets likely took the news as a strong positive for the company. The safety trade during the day was also seen in smaller cap indices, which underperformed its larger cap counterparts. VIX rose for the third day in a row and is now hovering above 23.00 a share.

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Major US equities still clocked a down week, with the S&P500 having its biggest weekly decline since October as investors switch their focus back on stimulus spending in the US. Small-cap indices still managed to outperform, likely due to sentiment souring only towards the end of the week, while being boosted by the heightened volatility that was skewed towards the upside earlier in the week. Equities outside of the US were mostly down as well, with EMEA region indices showing weakness across the board. The FTSE100 was close to flat, likely as investors were waiting on confirmation from British officials on the future of the country's trade relations with the EU in a post-Brexit world.

Indexes Weekly Change (%) Net Change Closing Price
Dow -0.57% -171.89 30,046.37
S&P500 -0.96% -35.66 3,663.46
Nasdaq -0.69% -86.36 12,377.87
Russell 2000 +1.02% +19.25 1,911.70
S&P600 +0.11% +1.15 1,086.59
FTSE100 -0.05% -3.48 6,546.75
Dax -1.39% -184.66 13,114.30
Stoxx -1.51% -53.43 3,485.84
Nikkei -0.37% -98.72 26,652.52
CSI300 -3.48% -176.29 4,889.63
KOSPI +1.41% +38.61 2,770.06
ASX200 +0.13% +8.50 6,642.58
HSI -1.23% -330.05 26,505.87
STI -0.64% -18.19 2,821.70
*Source: Bloomberg

Defensive positioning dominated the currency markets on Friday, as the dollar gained across all G10 currencies aside from the yen. The dollar had its first weekly gain since mid-November, likely fuelled by uncertainty regarding fiscal aid in the US. That said, it does only look like a healthy upside correction in the dollar in an overall downward cycle. Sterling weakened against the dollar the most relative to its G10 peers on Friday after British Prime Minister Boris Johnson had remarked that the UK was "very, very likely" to leave the EU bloc without a deal. The announcement sent GBP/USD to as low as 1.3135 in intraday trading before paring some of its losses to close at 1.3224. Sterling did however, reverse losses by early trading on Monday after a call between Johnson and European Commission President Ursula von der Leyen ended on a positive note, allowing Brexit talks to continue after the informal deadline that was originally on Sunday, December 13th.

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Safe haven assets were mostly skewed towards the upside on Friday in the overall risk-off tone of the market. Gold inched higher although the silver dipped likely thanks in part to the stronger dollar. The Japanese yen strengthened against every G10 currency. US Treasuries gained across the board, with benchmark 10-year yields falling 1bp to 0.90%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.18% +3.28 1,839.85
Silver -0.21% -0.05 23.95
USD/JPY -0.19% -0.20 104.04
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -2.2bps 0.12%
10-Year -1.0bps 0.90%
30-Year -0.0bps 1.63%
*Source: Bloomberg

Oil futures slipped on Friday, easing off a post-pandemic high on the broader risk-off trade in the market. The impact likely stemmed from both the lack of tangible progress on fiscal aid talks between US lawmakers, profit taking by speculators, as well as heightened lockdown restrictions across the world. In our view, the drop is already relatively muted considering US crude oil stockpiles posted the highest weekly build-up since April, coupled with an increase in gasoline and distillate inventories. This signals that oil traders are still highly optimistic of the future of oil prices, which can be confirmed by the backwardation in crude oil's terms structure as well. The key point to note is if gains will be sustainable as positive catalysts for crude oil appears to be fading. We expect more profit taking in nearer-dated futures contracts as a result, which could see more downward pressure on crude oil futures this week. That said, the outlook for oil remains positive in our view, which continues to imply a floor to potential downside in prices which in turn may be more beneficial for later-dated crude oil future contracts. Germany’s decision to implement harder lockdown measures starting Wednesday may also impact crude oil prices for the day.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -0.56% -0.28 49.97
WTI -0.45% -0.21 46.57
*Source: Bloomberg

Asian indices look set for gains in early trading on Monday morning, despite losses in US equities on Friday. Investors will continue to weigh between the short-term virus concerns across the world, while noting of the upside that comes with vaccine approvals. Performance still suggests that there is optimism in Asian markets, which could be due to the better positioning of economies in the region in terms of containment of the virus and undervalued equities relative to that of the US. The Nikkei, KOSPI and ASX200 were each trading higher in the earlier hours of Monday's trading session. Futures tracking major indices in the US were trading higher as of 9.13am (GMT +8). There are indications that a bipartisan group of US lawmakers will unveil a US$908 billion pandemic relief bill later today, although it does not appear that Republican or Democratic leadership has shown vocal support for it. First deliveries of the Pfizer-BioNTech vaccine in the US is also expected later today, after managing an approval by US regulators after US markets closed on Friday. This week will also feature monetary policy decisions from major central banks including the Fed, Bank of England and Bank of Japan. Investors may also want to keep a lookout for PMI figures, particularly from Germany as economic activity is expected to come increasingly under pressure with stricter lockdown measures ready to be implemented later this week.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +0.61% +163.18 26,815.70 9:03:30 AM
KOSPI +0.03% +0.87 2,770.93 9:23:30 AM
ASX200 +0.49% +32.92 6,675.50 9:23:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.59% +179.00 30,114.00 9:13:30 AM
US Futures +0.53% +19.50 3,673.00 9:13:28 AM
Nasdaq 100 Futures +0.40% +50.25 12,418.50 9:13:30 AM
*Source: Bloomberg

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

  • RBA Dec 1st Monetary Policy Meeting Minutes (8.30am +1)