Monday, January 11, 2021

Asia Times: Biden hints at trillions in stimulus; Brent tops US$55/barrel

  • Dollar
  • Gold
  • Yen
  • Pound
  • Stocks
  • NonFarm Payrolls
  • Oil


Market Recap: Biden hints at trillions in stimulus; Brent tops US$55/barrel

Wall Street ended the day with new highs on Friday as US President-elect Joe Biden fuelled investor optimism after signalling his stimulus package may reach upwards of a trillion dollars. This helped markets shake off some earlier pessimism from political uncertainty and weak labour market data in the US for December. Risk aversion still seemed to be present, with gains concentrated in more tech-heavy indices. The Nasdaq Composite led gains, with the tech-heavy S&P500 next.

The US Department of Labor's Bureau of Labor Statistics reported on Friday that NonFarm payrolls declined 140,000 in December, the first decline in the last eight months. While worse-than-expected (E: +54,000 P: +336,000), market participants were already hinted at a decline from earlier jobless benefit claims and private employment reports. Also to note was that the contraction was very much concentrated in lockdown-sensitive industries such as leisure and hospitality (A: -498,000 P: +75,000), while other services sectors such as retail (A: +121,000, P: -21,000) and transportation and warehousing (A: +47,000 P: +128,000) managed to stay in an expansionary state. This echoes PMI reports from ISM, which suggested that most companies were facing difficulty in hiring workers due to pandemic restrictions instead of looking to shed workers. Still, the US economy is in a deficit of 9.9 million jobs relative to pre-pandemic levels (22.2 million jobs lost in the period since the pandemic started, with only 12.3 million of those recovered). The report highlighted that the imbalance in recovery is still present, but that companies are starting to show better adaptability to the current environment than before, which may be setting up a sharp growth in economic activity when a large-scale fiscal spending bill comes from the US government after Biden steps into office.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.18% +56.84 31,097.97
S&P500 +0.55% +20.89 3,824.68
Nasdaq +1.03% +134.50 13,201.98
*Source: Bloomberg

The consumer discretionary sector outperformed in the S&P500 but gains mostly came from shares of Tesla. Utility stocks were also trading towards the top end of the index, while cyclicals dragged on the index. Similarly, small cap indices fell on Friday, signalling that there may have been profit taking in the market on cyclical positionings after a strong week of gains. VIX extended into a four-day decline and is now trading back to levels seen in December. It is still a touch above the lows in December of 20.57, and still at elevated levels compared to its three-year moving average.

Earnings season has kicked off outside the US with chipmaker Taiwan Semiconductor Manufacturing Co. (TSMC) and tech giant Samsung Electronics already reporting preliminary results last week. Shares of Samsung Electronics soared 7.12% on Friday despite missing analyst estimates as the market remains optimistic for a rebound in demand for smartphones and prices for NAND flash memory. Samsung's report came hours after Micron's who issued a better-than-expected forecast on demand for its dynamic random-access memory (DRAM), adding to the optimism for Samsung as well. Additionally, it appears that Samsung's top line may have impacted by weaker demand due to its stronger currency, mitigating some fears of fading organic demand. Similarly, TSMC reported December sales totalling NT$117.4 billion, which brings the aggregated total for last quarter to NT$361.5 billion, as estimated by Bloomberg based on previous sales figures. While slightly below average estimates of NT$364 billion, it is worth noting that estimates have risen through past months as analysts became more bullish on iPhone sales for the quarter. Along with other Apple suppliers, TSMC's strong revenue figures suggest strong demand for the new 5G iPhone. Also, it may signal continued strong chip orders from AMD as well. While we do anticipate strong demand for its products to continue, we also expect TSMC's top line to be affected from its stronger currency, along with increased costs due to its new 5nm chip processes. Shares of Samsung opened Monday morning soaring more than 5% thanks to reports that Intel was considering both it and TSMC for outsourcing production of its chips.  


Weekly performance still shows investors largely skewed towards cyclical and cross-geographical positionings. While major indices advanced over last week, the small cap Russell 2000 and S&P600 had gains more than double than that of all three major indices in the US. Similarly, most other major indices around the globe also advanced more than that of US, with the KOSPI gaining the most at +9.70%. We expect this trend to mostly continue, especially since after the magnitude for fiscal spending in the US is expected to come in larger-than-expected and as valuations around the world continues to converge.

Indexes Weekly Change (%) Net Change Closing Price
Dow +1.61% +491.49 31,097.97
S&P500 +1.83% +68.61 3,824.68
Nasdaq +2.43% +313.70 13,201.98
Russell 2000 +5.91% +116.80 2,091.66
S&P600 +6.37% +71.33 1,190.26
FTSE100 +6.39% +412.74 6,873.26
Dax +2.41% +330.75 14,049.53
Stoxx +2.60% +92.41 3,645.05
Nikkei +2.53% +694.86 28,139.03
CSI300 +5.45% +284.14 5,495.43
KOSPI +9.70% +278.71 3,152.18
ASX200 +2.59% +170.77 6,757.87
HSI +2.38% +647.09 27,878.22
STI +5.25% +149.38 2,993.19
*Source: Bloomberg

The Dollar Index continued to advance on Friday, likely spurred on by rising yields in the Treasury market. The broad performance of other G10 currencies were largely mixed, with the Norwegian krone and Swiss franc being the only currencies to advance against the greenback. Sterling was muted, likely as currency traders weighed between the reflation trade and the new lockdowns that England is currently in, along with the new pressures from Brexit.


Gold tumbles as demand for safe haven assets continue to mostly decline on Friday. Silver plunged more than 6%, bringing the gold-silver cross back higher and closer to its 50-day and 100-day moving averages. The Japanese yen fell against the dollar but advanced against the euro. US Treasuries were mixed, with shorter-termed treasuries rising will longer-termed ones fell. Benchmark 10-year yields were 3.6bps higher at 1.12% as a result.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -3.39% -64.94 1,849.01
Silver -6.33% -1.72 25.42
USD/JPY +0.13% +0.13 103.94
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.4bps 0.13%
10-Year +3.6bps 1.12%
30-Year +2.1bps 1.87%
*Source: Bloomberg

Oil futures jumped last Friday on signals for a Biden spending package in the trillions as well, pushing Brent to top US$55 per barrel. The annual rebalancing event in commodity indices may also be driving crude oil prices up as an estimated US$9 billion flows into crude oil futures. Oil traders will now weigh on the rally in crude oil prices that has seen both Brent and WTI crude oil futures gain upwards of 45% since October. In our view, risk will likely still be focused on the rising Covid-19 cases in the US and its subsequent impact on lockdowns as vaccines are still in the early stages of deployment. The key will be how long investors will be able to ignore these headwinds if countries or states outside of England shifts into a full lockdown as well. However, we are still more bullish on the outlook for oil prices in the medium-to-long-term especially thanks to Saudi Arabia's unilateral output cut of one million barrels for February and March, i.e. downside risk is likely to be limited to the short-term.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +2.96% +1.61 55.99
WTI +2.77% +1.41 52.24
*Source: Bloomberg

Asia looks mixed on Monday morning, with the tech heavy KOSPI surging on market open. The Tokyo Stock Exchange will remain closed for the day for a bank holiday. The ASX200 was trading lower as of 9.16am (GMT +8) in contrast to the KOSPI, signalling that optimism may be skewed towards tech heavier positions outside the US for the day. Futures tracking major indices in the US were in the red as of 9.07am (GMT+ 8), hinting at possible profit taking to hedge against some of the political risk that is expected in the final week of Donald Trump' presidency.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei - - 28,139.03 -
KOSPI +3.03% +98.41 3,250.59 9:17:00 AM
ASX200 -0.45% -30.27 6,727.60 9:16:44 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.27% -82.00 30,911.00 9:07:09 AM
S&P500 Futures -0.30% -11.25 3,806.25 9:07:09 AM
Nasdaq 100 Futures -0.23% -29.50 13,067.75 9:07:07 AM
*Source: Bloomberg

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

  • China Dec Inflation Rate (CPI) (9.30am)