Market Talk – August 18, 2020

ASIA:

The Trump administration on Monday announced it would further tighten restrictions on Huawei Technologies Co, aimed at cracking down on its access to commercially available chips. The US Commerce Department’s actions expanded limits announced in May were aimed at preventing the Chinese telecommunications giant from obtaining semiconductors without a special license — including chips made by foreign firms that have been developed or produced with US software or technology. The new actions, effective immediately, should prevent Huawei’s attempts to circumvent US export controls, Commerce said.

The Indian economy may contract by 16.5% in the quarter ended June, compared to earlier estimates of a decline of more than 20%, on better-than-expected corporate earnings, according to economists at top lender State Bank of India. However, they believe the rural recovery is unlikely to support such pace in subsequent quarters as overall, the per capita monthly expenditure in urban areas is at least 1.8 times of rural areas, and rural wage growth in real terms might still be negative.

Reuters Tankan survey of business sentiment showed on Tuesday Japan’s manufacturers were their least pessimistic in four months in August, but signaled a slow recovery from the coronavirus pandemic. The poll, which tracks the Bank of Japan’s (BOJ) closely watched “tankan” quarterly survey, pointed to a modest recovery, with manufacturers’ morale seen somewhat less negative in the coming months. Tuesday’s survey found that the mood of manufacturers rose to minus 33 in August from minus 44 the previous month, its highest since February. The service-sector gauge was at minus 23 from minus 26.

The major Asian stock markets had a mixed day today:

  • NIKKEI 225 decreased 45.67 points or -0.20% to 23,051.08
  • Shanghai increased 12.29 points or 0.36% to 3,451.09
  • Hang Seng increased 20.04 points or 0.08% to 25,367.38
  • ASX 200 increased 47.00 points or 0.77% to 6,123.40
  • Kospi decreased 59.25 points or -2.46% to 2,348.24
  • SENSEX increased 477.54 points or 1.26% to 38,528.32
  • Nifty50 increased 138.25 points or 1.23% to 11,385.35

The major Asian currency markets had a mixed day today:

  • AUDUSD increased 0.00319 or 0.44% to 0.72397
  • NZDUSD increased 0.00608 or 0.93% to 0.66015
  • USDJPY decreased 0.6 or -0.57% to 105.43
  • USDCNY decreased 0.0269 or -0.39% to 6.90570

Precious Metals:

  • Gold increased 20.52 USD/t oz. or 1.03% to 2,006.05
  • Silver increased 0.633 USD/t. oz or 2.31% to 28.034

Some economic news from last night:

Japan:

Reuters Tankan Index (Aug) increased from -44 to -33

New Zealand:

RBNZ Offshore Holdings (Jul) increased from 41.40% to 43.30%

Indonesia:

Balance of Payments (EUR) (Q2) increased from -8.5B to 9.2B

Current Account % of GDP (Q2) increased from -1.40% to -1.20%

Some economic news from today:

Indonesia:

Export Growth (YoY) (Jul) decreased from 2.28% to -9.90%

Import Growth (YoY) (Jul) decreased from -6.36% to -32.55%

New Zealand:

GlobalDairyTrade Price Index increased from -5.1% to -1.7%

EUROPE/EMEA:

The UK economy will likely be smaller at the end of 2021 than it was before plunging into a record recession this year, according to a Bloomberg survey that casts fresh doubt over Bank of England projections. Calculations based on the median estimate of economists polled this month show gross domestic product is set to be around 5% below its pre-pandemic level. The central bank sees output fully recovering by the same point.

The UK furlough scheme is scheduled to end in October. From August, employers have had to start contributing towards its cost, first with pension and national insurance contributions, and with 10% and then 20% of wages in the next two months. The chancellor, Rishi Sunak, said this month that the decision to wind down the UK furlough was “one of the most difficult decisions” he had had to make. But he said it was not sustainable, and that most other countries were making similar moves to wind down their schemes.

IMF staff and the Afghanistan authorities have reached a staff-level agreement on an economic reform program to be supported by a new three-and-half year USD 364 million Extended Credit Facility (ECF). The ECF—following a disbursement under the IMF’s Rapid Credit Facility in June—will help mitigate the economic impact of the Covid-19 pandemic, maintain macroeconomic stability, and underpin reforms for economic resilience and good governance.

Germany is expected to extend its pandemic furlough scheme to 24 months after Angela Merkel indicated that she welcomed the proposal to let the Kurzarbeit program run on. A final decision on an extension, which it is estimated will cost €10bn (£9bn), is expected on 25 August.

The major Europe stock markets had a negative day:

  • CAC 40 decreased 33.88 points or -0.68% to 4,938.06
  • FTSE 100 decreased 50.82 points or -0.83% to 6,076.62
  • DAX 30 decreased 38.90 points or -0.30% to 12,881.76

The major Europe currency markets had a mixed day today:

  • EURUSD increased 0.00689 or 0.58% to 1.19320
  • GBPUSD increased 0.01385 or 1.06% to 1.32393
  • USDCHF decreased 0.00293 or -0.32% to 0.90329

US/AMERICAS:

The S&P 500 rose to a record high this Tuesday after closing at 3,389.78. Amazon’s 4.19% increase spurred the record performance, followed by Microchip Tech (3.91%), Salesforce (3.76%), Alphabet C (2.73%), and Adobe (2.69%).

Federal Reserve Bank of Boston President Eric Rosengren called the forced lockdowns in the US “a false trade-off” that damaged the economy. “You can see now in Europe, where they had a much stiffer lockdown, and where they delayed the opening, that they’re now in a position where the economy is, in many respects, doing better than the United States’,” Rosengren stated. Fear, according to the Fed president, caused Americans to curtail spending. “So once people get more comfortable [with the idea] that the pandemic is under control, they start spending again,” he claimed.

President Trump claimed today that his administration “turned off” the economy during the coronavirus outbreak to save millions of lives. However, he stated that his administration is “now building an even greater economy than it was before.” The president voiced optimism on jobs returning to the country and pointed to the Nasdaq’s strong performance as of late.

The World Health Organization declared a mental health crisis in the Americas due to the coronavirus crisis. Substance abuse and domestic violence cases are becoming increasingly common. Director of the Pan American Health Organization Carissa F. Etienne said that the mental health crisis is on “a scale never seen before.” Ongoing lockdown measures have prevented people from seeing their support systems or seeking help. According to Reuters, Argentina, Colombia, and Mexico have all reported an increase in domestic violence incidents. “It is urgent that mental health support is considered a critical component of the pandemic response,” Etienne stated.

US Market Closings:

  • Dow declined 66.84 points or -0.24% to 27,778.07
  • S&P 500 advanced 7.79 points or 0.23% to 3,389.78
  • Nasdaq advanced 81.12 points or 0.73% to 11,210.84
  • Russell 2000 declined 15.7 points or -0.99% to 1,569.77

Canada Market Closings:

  • TSX Composite declined 30.06 points or -0.18% to 16,626.06
  • TSX 60 declined 1.66 points or -0.17% to 996.5

Brazil Market Closing:

  • Bovespa advanced 2,469.94 points or 2.48% to 102,065.35

ENERGY:

Compliance with OPEC+ oil output cuts is seen at around 97% in July, two OPEC+ sources told Reuters. The oil-producing nations have been cutting output by record levels to curb supply and reduce worldwide inventories.

The oil markets had a mixed day today:

  • Crude Oil decreased 0.3 USD/BBL or -0.70% to 42.5900
  • Brent decreased 0.26 USD/BBL or -0.57% to 45.1100
  • Natural gas increased 0.081 USD/MMBtu or 3.47% to 2.4170
  • Gasoline increased 0.0089 USD/GAL or 0.70% to 1.2766
  • Heating oil increased 0.0152 USD/GAL or 1.22% to 1.2562

The above data was collected around 15:30 EST on Tuesday.

  • Top commodity gainers: Natural Gas (3.47%), Cocoa (2.77%), Coffee (2.94%), and Orange Juice (4.20%)
  • Top commodity losers: Lean Hogs (-4.02%), Sugar (-1.45%), Wheat (-1.55%), and Rubber (-1.76%)

The above data was collected around 15:35 EST on Tuesday.

BONDS:

Japan 0.04%(+0bp), US 2’s 0.15% (-1bps), US 10’s 0.66%(-2bps); US 30’s 1.41%(-1bps), Bunds -0.46% (+3bp), France -0.17% (-1bp), Italy 1.00% (-0bp), Turkey 14.10% (-25bp), Greece 1.11% (+0bp), Portugal 0.36% (-0bp); Spain 0.31% (+5bp) and UK Gilts 0.22% (+0bp).

  • UK 30-Year Treasury Gilt Auction increased from 0.683% to 0.784%
  • Japan 30-Year JGB Auction increased from 0.612% to 0.617%