Thursday, January 14, 2021

Asia Times: Intel’s move to replace its CEO sends shares more than 6% higher; J&Js experimental vaccine shows early promise

Tags
  • Dollar
  • Gold
  • Yen
  • Stocks
  • Oil
  • US earnings' season

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Market Recap: Intel’s move to replace its CEO sends shares more than 6% higher; J&Js experimental vaccine shows early promise

Wall Street ends Wednesday mixed as investors seem to be taking a breather from cyclicals stocks in favour of more defensive positioning ahead of President-elect Joe Biden's stimulus package proposals that is expected to be unveiled on Thursday in the US. On the impeachment front, the House voted 232-197 in favour of passing the resolution to impeach US President Donald Trump - again - on his role in the Capitol riot. It will now move to the Senate, although a trial may only come after Biden's inauguration as Senate Majority Leader Mitch McConnell has already rejected the notion to convene an emergency session for a trial. Expect more volatility as political headlines will likely dominate markets in the coming days.

Indexes Daily Change (%) Net Change Closing Price
Dow -0.03% -8.22 31,060.47
S&P500 +0.23% +8.65 3,809.84
Nasdaq +0.43% +56.52 13,128.95
*Source: Bloomberg

Energy, industrials, and materials companies underperformed in the S&P500, while the defensive utilities sector rose close to 2% on Wednesday as investors pare back slightly on risk appetite in anticipation for Biden's proposals. Still, cyclical sectors are outperforming more defensive sectors in week-to-date gains, signalling that yesterday's reversal may only be profit-taking and portfolio rebalancing driven instead of being fundamentally driven. Similarly, the Russell 2000 and S&P600 fell in contrast to the S&P500. We view this to be a healthy correction, with potential for a deeper-than-expected but still limited downside as the long-term fundamentals continue to tilt in favour of a vaccine-driven economic recovery. In company news, Intel's stock ended the day more than 6% higher after it announced that the company will be replacing CEO Bob Swan with VMWare CEO Pat Gelsinger. The move drew optimism from the market on Intel's outlook as Gelsinger is expected to help drive innovation in the chipmaker and help solve some of the issues that the company has been facing in the wake of AMD's strong advancement in the chip market thanks to Gelsinger’s 30 year experience at Intel up to 2008, including a tenure as the company’s CTO. Gelsinger will take on the role starting February 15th. AMD's stock plunged 3.75% in response. Traders will be keeping a lookout at next week’s earnings call from Intel as it will give a better indication on Gelsinger’s vision for the company, as well as detail its plans to reduce production delays for its 7nm chip production.

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The dollar advanced against the other currencies, but upside in the dollar appears to only be marginal against most of its G10 peers relative to previous days. Safe haven currencies were trading towards the top of the G10 currency basket, while commodity-linked ones underperformed. Currency markets' focus will likely be on the possibility of civil unrest that may surface come Biden's inauguration day with the US government already sending warnings of potential violence ahead of the inauguration. Also, traders will likely be watching Fed officials for more signals on a potential taper in asset purchases this year after conflicting comments from policymakers this week. The latest comments from Fed Governor Lael Brainard pushing back on a possible taper of its bond buying program later this year likely helped fuel the dollar's gains on Wednesday.

Currencies were probably also sensitive to virus developments after British Prime Minister Boris Johnson warned that the UK's ICUs could soon be overwhelmed. Other updates regarding the pandemic include Japan expanding its state of emergency beyond Tokyo, and Johnson & Johnson's (J&J) experimental one-shot Covid-19 vaccine showing long-lasting immune response in an early safety study. J&J's vaccine will likely be the next market catalyst after Biden's stimulus proposal as the experimental vaccine's single-shot nature provides a strong advantage to current two-shot vaccines especially in terms of distribution and administration. Additionally, the ability to be able to store its vaccines at refrigerator temperatures for three months also helps in distribution across states in the US and the world. Interim results for its phase three trials is expected to be released in late January or early February, with a possible emergency use approval in March according the company, assuming its efficacy data holds. Operation Warp Speed officials have signalled that an approval could be gained as early as mid-February, which suggests a more probable timeline of end-February to early-March for emergency use approval.

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Safe haven assets spiked on Wednesday after days of losses in the Treasury market. Gold and silver, however, continued its descent. The Japanese yen fell against the dollar but gained against the euro. US Treasuries advanced across the board, with benchmark 10-year yields declining 4.6bps to 1.08%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.50% -9.26 1,845.51
Silver -1.32% -0.34 25.22
USD/JPY +0.13% +0.13 103.89
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.2bps 0.14%
10-Year -4.6bps 1.08%
30-Year -5.6bps 1.82%
*Source: Bloomberg

Oil futures inched lower on Wednesday as the impact of a stronger dollar overshadowed tighter crude oil supplies in the US. The US Energy Information Administration (EIA) reported a drawdown of over 3 million barrels last week, the fifth decline in a row. But optimism was dampened as there was a build-up across gasoline and distillate stockpiles. Implied demand for distillates did show some sign of life but remained below the 12-week and 24-week moving averages. Gasoline implied demand weakened for another week. The UK's lockdown may add some downside pressure to crude oil prices in the coming days, with the country's road vehicle use down 42% on pre-Covid-19 levels last week. The focus will still be on whether the supply cuts from OPEC+ will be enough to offset the dip in demand. Our outlook for crude oil prices remains the same, i.e. limited short-term downside thanks to a probable dip in demand with long-term upside due to Saudi's voluntary output cut buying time for vaccines to fuel and economic recovery and as more vaccines (including J&J) approach conclusion of their respective phase three trials.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -0.92% -0.52 56.06
WTI -0.56% -0.30 52.91
*Source: Bloomberg

Asian equities were trading higher on Thursday morning as tech drives most of the gains in the region. The Nikkei, KOSPI and ASX200 were all trading in the green in the earlier hours of Thursday's trading session. Sectors to watch will be the battery-related companies with Morgan Stanley showing preference lithium stocks – in particular China lithium sector stocks - as a proxy play for tighter supply of raw materials in batteries thanks to demand for electric vehicles. Copper and nickel producers may also be movers after prices rebounded thanks to the outlook for large-scale fiscal spending in the US. Futures tracking major indices in the US were all higher as of 9.30am (GMT +8).

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +0.91% +261.21 28,717.80 9:20:05 AM
KOSPI +0.09% +2.69 3,150.98 9:40:00 AM
ASX200 +0.38% +25.80 6,712.40 9:39:44 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.18% +56.00 31,015.00 9:30:05 AM
S&P500 Futures +0.21% +7.75 3,811.75 9:30:08 AM
Nasdaq 100 Futures +0.24% +30.75 13,003.00 9:30:06 AM
*Source: Bloomberg

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

  • China Dec Trade Balance (10am)
  • US Jan 8th/Jan 1st Initial/Continuing Jobless Claims (9.30pm)

Companies reporting earnings next include (all timings in GMT +8):

  • BlackRock (9.30pm)
  • Delta Air Lines (11pm)