Tuesday, January 5, 2021

Asia Times: Volatility spikes on anticipation for Georgia’s Senate race; England moves into full lockdown measures

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


Market Recap: Volatility spikes on anticipation for Georgia’s Senate race; England moves into full lockdown measures

US equities tumbled a day ahead of the Georgia runoff elections likely as increased risk of lockdowns and political uncertainty contributed to risk aversion in the market. This contrasted most of the rest of the global market that inched higher on the first trading day of the year. Traders should continue to expect short-term headlines to cause swings in the market despite anticipation of long-term upside across most sectors. Georgia's runoff election results will be especially important in determining policy for the rest of the year as a Republican-controlled Senate is likely to mean blocked efforts from a Biden administration. As per yesterday's brief, we think favour is tilted towards Republicans winning at least a single seat in Georgia, due to aggregated votes in November favouring Republican as well as the state of Georgia traditionally being Republican leaning. That said, it still will be a close race for both seats especially since Democrat voters may have been increasingly less likely to flip to back Republicans as a power check for Joe Biden as recent news surrounding US President Donald Trump reportedly pressuring Georgia's secretary of state to recount the presidential election votes back in November, which explains some of Monday's heightened volatility in the equities market. VIX jumped 18.55% on Monday, the most since October, signalling that tomorrow's election results is likely to be a high impact event on the market.

Indexes Daily Change (%) Net Change Closing Price
Dow -1.25% -382.59 30,223.89
S&P500 -1.48% -55.42 3,700.65
Nasdaq -1.47% -189.83 12,698.45
*Source: Bloomberg

S&P500 Sectors were broadly lower on Monday, with energy stocks the exception. Coupled with the materials sector outperforming most other sectors, it suggests that markets may still be favouring commodity-related stocks on expectations for a devalued dollar. The energy sector may also have been supported by Kinder Morgan's Permian Highway Pipeline which went into commercial service over the New Year holiday, which is expected to alleviate volatility off spot natural gas prices in West Texas. Outside of that, small cap indices fell at mostly the same pace as that of major indices in the US, signalling the broad selloff nature of yesterday's trading session. In company news, shares of Tesla helped support the S&P500 index after gaining upwards 3% after it reported that it only fell 450 vehicles short of its half a million deliveries target for 2020. The company will now need to ramp up production in a similar way to that of its Shanghai operation, with upcoming factories in Texas and Germany if demand continues to grow at the rate it is currently experiencing.


The currency market was mixed on Monday, with more defensive currencies outperforming the rest of their G10 counterparts thanks to a spike in risk aversion in the broad market. Sterling fell the most, as British Prime Minister Boris Johnson imposed new lockdown restrictions for the UK. England will now go into full lockdown which will last until at least February 15th, where schools will close and the public will be required to stay home unless for permitted reasons. The new restrictions are expected to put additional pressure on the already devastated retail and hospitality industry, as well as cause another deep contraction in economic activity rivalling that seen earlier in 2020. The latest move from Johnson highlights the severity of the new strain of the novel coronavirus that features higher transmissibility and its impact on the health care system of the UK. This is a growing risk that is likely to impact the rest of the world as well, with the latest being New York, US reporting its first case of the UK's variant of novel coronavirus late on Monday. Importantly, it will be a bigger risk for countries with high human mobility and stressed health care system, which the US is currently experiencing. Additionally, while current vaccines are expected to be little impacted by the new strain, it will still take time to fully deploy into countries to materially alleviate the stress off the health care system.


Safe haven assets ended Monday mostly higher. Gold continued its rally along with silver, with the gold-silver cross maintaining levels near 70. The spike in gold contrasted the 17% intraday plunge in the volatile bitcoin that eased into a 6.17% 24 hour decline by Tuesday morning in Asia, signalling that we may be seeing the gold trade catching up to that of the digital currency in reflation positionings. The Japanese yen gained against the dollar but fell short of the euro. US Treasuries were mixed, with later-dated Treasuries declining while short-termed ones advanced. Benchmark 10-year yields were flat at 0.91%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +2.33% +44.23 1,942.90
Silver +3.16% +0.83 27.24
USD/JPY -0.07% -0.07 103.13
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.8bps 0.11%
10-Year +0.0bps 0.91%
30-Year +1.1bps 1.66%
*Source: Bloomberg

Oil futures dipped the most in two weeks after OPEC+ discussions were extended for an extra day as members fail to reach a decision on a 500,000 barrel-a-day hike come February. Bloomberg reported that Russia and Saudi Arabia along with most other producers in the bloc had opposing views on production levels for February, with Russia favouring maintaining the hike in February according to unnamed delegates. While we don't expect talks to breakdown to the extent of last year's month-long price war, the report does suggest that upcoming decisions will be increasingly difficult as some members will more likely favour market share over price of oil. Additionally, new lockdowns in the UK, US, South Korea and now possibly the Japan are likely to add to the weight on oil prices, further complicating OPEC+'s decision. As a result, while we expect an eventual rollover in current production levels to February with a possible option for more than a 500,000 barrel per day increase in output for March and beyond, crude oil prices is still likely to suffer some short-term downside due to growing risk of impacted demand across the world. Our longer-term expectations for crude oil remain the same however, as vaccine-driven economic recovery and a devalued dollar is likely to drive prices higher.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -1.37% -0.71 51.09
WTI -1.85% -0.90 47.62
*Source: Bloomberg

Asian indices were mostly lower on Tuesday morning and we expect that to marginally continue through the day on uncertainty in the US, and as investors price in some of the short-term risk of new stricter lockdowns across the world. The Nikkei and ASX200 were both trading lower in the earlier hours of the day while the KOSPI inched 0.02% higher by 9.18am (GMT +8). Futures tracking major indices in the US were mostly higher as of 9.08am (GMT +8), which in our view is mostly only a signal of mean reversion after the sharp decline in equities on Monday instead of robust fundamentally driven gains. Expect volatility in the US on Wednesday and Thursday thanks to the Georgia runoff elections. Voting is expected to end at about 7pm in Georgia (or 8am GMT +8), with tabulating starting after. A close race will mean that it will likely take additional time for counting before a winner can be declared. Republicans are expected to take the initial lead, due to conservative counties historically reporting results faster and republican-voters more likely to case in-person ballots compared to democrat-voters.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.14% -38.47 27,219.91 8:58:45 AM
KOSPI +0.02% +0.47 2,944.92 9:18:40 AM
ASX200 -0.27% -17.75 6,666.50 9:18:44 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.21% +62.00 30,166.00 9:08:50 AM
US Futures +0.26% +9.75 3,702.00 9:08:46 AM
Nasdaq 100 Futures +0.15% +18.50 12,704.00 9:08:49 AM
*Source: Bloomberg

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

  • Germany Dec Unemployment Rate/Change (4.55pm)
  • US Dec Manufacturing PMI (ISM) (10pm)
  • Georgia Runoff Elections Balloting Deadline (8am +1)