Wednesday, January 13, 2021

Asia Times: Investors continues rotation into cyclicals and value; oil rallies for sixth straight day

  • Dollar
  • Gold
  • Yen
  • Euro
  • Stocks
  • Oil


Market Recap: Investors continues rotation into cyclicals and value; oil rallies for sixth straight day

Major indices in the US inched higher on Tuesday, as markets were mostly driven by cyclical and value type firms. Politics is likely still playing a part in markets with President-elect Joe Biden expected to unveil his proposals for fiscal support on Thursday in the US this week. Tech companies that were the highlight of yesterday's plunge continued to fall today, as investors' concern on political action being taken on those companies continued to put pressure on their share prices. This also means that market participants may also be more motivated to take profits off those positions to rotate them into cyclical sectors.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.19% +60.00 31,068.69
S&P500 +0.04% +1.58 3,801.19
Nasdaq +0.28% +36.00 13,072.43
*Source: Bloomberg

Energy and materials lead the S&P500 while the health care and communications sectors underperform. The increased demand for commodity trades and expectations for fiscal stimulus likely remains the largest drivers for energy and materials companies on Tuesday. Small caps extend its outperformance over major indices thanks to its heavier weightages on cyclical companies in comparison to major indices. Tendency for smaller stocks to trade at a bigger discount (i.e. value) also continues to pull investors towards that segment of the market. VIX dipped 3.11%, while the VXN dropped 2.04%. In company news, shares of Pfizer fell 1.56% after CEO Albert Bourla said 2021 adjusted earnings will be between US$3 and US$3.10 per share during the JPMorgan Healthcare Conference on Tuesday, less than the median analyst estimate of US$3.18 per share.


The dollar retreated on Tuesdays, with commodity-linked currencies rebounding close to 1%. Safe haven currencies in the G10 basket underperformed most of its major peers, contrasting Monday’s currency market performance as well. The dip in the dollar was likely driven in part by the dip in 10-year bond yields, and an ease up in the greenback's performance after four straight trading sessions of gains. We do still expect to see weakness in the dollar despite the uptick over past days as we view uncertainty on the velocity and robustness of an economic recovery still present. However, the pace of that trend may be looking to ease sooner than expected, and we will be keeping a close watch on the Fed for signals of a possible taper on asset purchases this year. We do note that a tapering still looks only likely at earliest at the end of the year with Fed officials still mixed on that front.


Safe haven assets were mostly mixed on Tuesday as markets weigh an economic recovery against the risk of rising asset valuations on Tuesday. Gold and silver both recovered both of Monday's losses, but we view this as an impact of the decline in the greenback. The Japanese yen strengthened against the dollar but was flat against the euro despite falling against most other currencies in the G10 basket. US Treasuries mostly gained, with 10-year yields falling 1.7bps to 1.13%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.59% +10.88 1,854.77
Silver +2.60% +0.65 25.56
USD/JPY -0.48% -0.50 103.76
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +0.0bps 0.14%
10-Year -1.7bps 1.13%
30-Year -1.1bps 1.87%
*Source: Bloomberg

Oil futures continued to gain on Tuesday, with WTI extending into a six-day rally as investors remain bullish on the outlook of crude oil prices despite both benchmarks reaching overbought levels. Oil prices continued to be spurred on early during Wednesday's trading session after the industry-funded weekly report from the American Petroleum Institute showed US crude oil stockpiles falling 5.82 million barrels last week. While longer-term fundamentals skew our expectations towards an optimistic outlook for crude oil prices - especially so after Saudi Arabia's unilateral one million barrel production cut - we would still caution that both benchmarks may be due for a technical correction and over optimism from recent news. Also, we expect traders to be closely watching today's official weekly report for a confirmation of the drawdown in US crude oil markets, while also looking for inventories on the more economically driven distillates.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +1.65% +0.92 56.58
WTI +1.84% +0.96 53.21
*Source: Bloomberg

Asian markets were trading mostly muted on Wednesday, as investors wait on more information regarding the political situation in the US. Investors in the region will also likely be conflicted by the optimistic valuations that have already spilled over in markets in the region and will have to weigh that against short-term headwinds in an economic recovery. The Nikkei was close to flat, while the KOSPI and ASX200 were trading slightly lower in the earlier hours of Wednesday's trading session. Futures tracking major indices in the US were trading close to flat with a marginal upside bias as of 9.31am (GMT +8).

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +0.05% +14.01 28,178.35 9:21:05 AM
KOSPI -0.12% -3.84 3,122.11 9:41:00 AM
ASX200 -0.24% -15.78 6,663.30 9:40:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.05% +17.00 30,991.00 9:31:04 AM
S&P500 Futures +0.05% +2.00 3,796.50 9:31:02 AM
Nasdaq 100 Futures +0.07% +9.25 12,899.50 9:31:04 AM
*Source: Bloomberg

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

  • Eurozone Nov Industrial Production (6pm)
  • US Jan 8th Mortgage Applications (MBA) (8pm)
  • US Dec Inflation Rate (Core CPI/CPI) (9.30pm)
  • US Jan 8th Crude Oil Stocks Change (EIA) (11.30pm)