Tuesday, December 15, 2020

Asia Times: Investors flock to safety on threat of New York City’s lockdown; UK to bump London up to tier 3 measures

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  • Dollar
  • Gold
  • Euro
  • Stocks
  • Oil

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Market Recap: Investors flock to safety on threat of New York City’s lockdown; UK to bump London up to tier 3 measures

Covid-19 related headlines return to plague markets despite the initial rollout of vaccines in the US as markets react negatively to New York City potentially returning to a full lockdown. Equities were surging at the start of Monday's trading session in the US likely on firstly the rollout of the Pfizer-BioNTech vaccine in the US and secondly a new two-part proposal by US lawmakers in an attempt to advance a fiscal spending bill through Congress. The bipartisan group of lawmakers are now proposing a two-part bill that separates liability protections and state and local government aid from other points that does hold more broad support. Markets likely took that as a positive signal that we could see at least some aid to the US economy before the year ends. But later in the day remarks by New York Governor Andrew Cuomo that the state is headed towards another full shutdown, especially for more population-dense cities such as New York City likely rattled investors, inciting a shift back to safety. The same warnings were also echoed by New York City Mayor Bill De Blasio, cementing US officials' concern on the strained health care system. It does seem that the risk of complacency of the general population may be materialising, as vaccine deployments may not be able to be rolled out fast enough to curb over-optimism of people that assume a vaccine approval would mean that lockdowns are no longer necessary. The S&P500 has fallen for the fourth straight trading session after Monday’s dip.

On a side note for election news, President-elect Joe Biden's victory in the presidential elections has now been finalised after elector college voters in each state voted on Monday. The next key date for the US will be the runoff elections for both Senate seats in Georgia in early January, which will be key for majority in the Senate. Another high turnout is expected with early voting already underway. Democrats will need to win both seats to gain control, which if they do, is expected to result in high levels of fiscal spending in the initial phase of Joe Biden's presidency.

Indexes Daily Change (%) Net Change Closing Price
Dow -0.62% -184.82 29,861.55
S&P500 -0.44% -15.97 3,647.49
Nasdaq +0.50% +62.17 12,440.04
*Source: Bloomberg

A shift back to safety was the driver of markets on Monday. Tech supported the S&P500 and resulted in gains in the Nasdaq. Energy suffered the most at what appears to be renewed concerns on lockdowns impacting demand for energy products. Important to note is that the US is not the only country that is running the risk of stricter lockdown measures. Germany and parts of the UK will be stepping into hard lockdowns starting this Wednesday as well. Walt Disney's shares dropped upwards of 3% after BMO Capital downgraded the stock from outperform to perform, and now favours Netflix over the Disney. Disney as a result had a large drag on the DJIA. VIX spiked for the fourth straight trading session on Monday, surging 6.05% to a new four-week high of 24.72.

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The dollar may have shown overall weakness through the day, but risk-off sentiment was present in the currency market as well. The greenback reached a two-year low but reversed some of its losses towards the end of the session likely as risk aversion temporarily returned to the market. Profit-taking on short positions likely were triggered at that level as well, resulting in the reverse in course. That said, the dollar remains on a downward trajectory, driven by expected fiscal spending and sentiment for a weak dollar outlook as the global economy continues to recover from the pandemic crisis.

Sterling surged on Monday, despite little material changes to remarks from officials on both sides. EU Chief Negotiator Michel Barnier repeated in a private meeting of ambassadors that a trade deal is still possible by the end of the week, but significant differences will need to be bridged. UK officials reiterated that a no-deal outcome is still possible. The UK is itself facing another yet another hurdle to an economic recovery. UK Health Secretary Matt Hancock announced that London and parts of south-east England will move into the country's strictest tier of restrictions starting Wednesday. Hancock also remarked that a new variant of the disease may be driving the rapid spread of Covid-19 in the area. The new variant of the virus is currently being assessed by government scientists and the WHO, and there is no evidence to suggest that the current vaccines will not be effective against it. The move to enforce tier three measures on those cities are likely to exacerbate the damage that the hospitality and leisure industry is facing. Especially as businesses were likely more optimistic for the five-day relaxation of rules over the Christmas holiday. However, that in itself will pose a challenge for the UK, if it is unable to isolate the spread of the new variant which runs the risk of spill over into other cities and subsequently force wider and longer tier 3 measures.

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Safe haven assets were mixed on Monday, likely as investors continue to weigh between the short-term impact of virus-induced lockdowns to alleviate the strain on health care systems and the longer-term driver of a robust economic recovery from vaccines. Gold and silver both dipped. The Japanese yen fell against the euro but was closer to flat against the dollar. US Treasuries were flat across the board, with benchmark 10-year yields inching 0.3bps lower to 0.89%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.68% -12.50 1,827.35
Silver -0.47% -0.11 23.84
USD/JPY +0.01% +0.01 104.05
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.0bps 0.12%
10-Year -0.3bps 0.89%
30-Year +0.2bps 1.63%
*Source: Bloomberg

Oil futures inched higher on Monday despite non-oil friendly headlines across the world, displaying speculators higher levels of optimism in oil markets. OPEC revised its projections downward yet again, now expecting global fuel consumption in Q1 2021 to be a million barrels a day less than its earlier forecast. Parts of the UK and Germany are looking at stricter lockdown measures starting Wednesday this week. New York City's risk of a full lockdown materialising appears to be rising. Still, crude oil futures managed to advance, possibly on strong sentiment that crude oil supply on tankers at sea continues to dwindle. According to Vortexa's research, floating storage saw a decline of 11% to 86 million barrels last week, closing in on its four-year average. Demand in Asia is also likely supporting crude oil prices, and if sustained will probably be able see to another spark in upside for oil prices as more US and EU demand returns online. The challenge for oil prices will as a result remain downside risk in the short-term, which suggests crude oil could be due for a small downside correction in the short-term before resuming its recovery in the medium-to-long-term.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +0.64% +0.32 50.29
WTI +0.90% +0.42 46.99
*Source: Bloomberg

Stocks in Asia were trading a touch lower on Tuesday morning, tracking major indices in the US and possibly facing downward pressure on some risk aversion in the market on the new variant of the virus seen in the UK. Asian investors are likely to be waiting on industrial production and retail sales data in China to see if the global recovery in the economic giant is still being sustained. The Nikkei, KOSPI and ASX200 were each trading lower in the earlier hours of Tuesday's trading session. Futures tracking major indices in the US were trading higher as of 9.27am (GMT +8) and were likely driven more by market regressive properties than fundamentals.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.06% -16.87 26,715.57 9:18:00 AM
KOSPI -0.17% -4.75 2,757.45 9:38:00 AM
ASX200 -0.27% -17.65 6,642.60 9:37:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.29% +86.00 29,867.00 9:27:50 AM
US Futures +0.24% +8.75 3,648.75 9:27:54 AM
Nasdaq 100 Futures +0.17% +20.75 12,483.25 9:27:50 AM
*Source: Bloomberg

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

  • China Nov Industrial Production (10am)
  • UK Oct Unemployment Rate (ILO) (3pm)
  • US Dec Empire Manufacturing Index (New York Fed) (9.30pm)
  • US Nov Industrial Production (10.15pm)