Asian Equity Market
Asia has been showing relative resilience to the US tech sector’s drop and demonstrated this again on Friday. The Nikkei was higher by +0.74% with stock in question, Softbank stemmed more losses. In China, the SHCOMP also rose +0.79%, while the HSI advanced by +0.78%. The Hang Seng tech was particularly strong at +2.55%, though the Kosdaq put in a more modest +0.47%.
European Equity Market
In Europe, most major indices closed near unchanged on the day. The German DAX finished -0.05%, with the UK’s FTSE 100 leading the way at +0.48%. The FTSE 100 has been benefiting from the weakness in the pound for the past week as it closed past +4.0% on the week.
US Equity Market
In the US, it was the small-cap Russell 2000’s time to lead the declines as it dropped -0.70% vs the Nasdaq’s -0.60%. On the week, the Nasdaq suffered its worst week since March at -4.1%, while the S&P 500 dropped -2.5%. Volatilities for the major US indices have also continued to come in, though they are above mid-Aug levels. Goldman raised its 3-month stock forecast to overweight. Amongst the S&P sectors, industrials were the outperformer at +1.4%. Technology lagged the rest at -0.8%.
U.S. Treasury yields fell on Friday despite the US treasury announcing that the US budget deficit topped USD3 trillion for the 1st 11 months of 2020. Bond yields also fell after data showed an increase in US CPI in August. Some market players are saying that the low US 10-year yields are reflecting pessimism that the Fed will be able to lift inflation to its target, despite substantial fiscal stimulus and ongoing quantitative easing. Long-term yields fell -0.71-1.14bps and the US 2Y yields dropped -1.19bps. This had the effect of slightly steepening the US 2Y-10Y curve to 53.88bps. Germany’s benchmark 10-year bond yields edged down 4.80bps reversing Thursday’s ECB moves.
The precious metals complex came in slightly weaker on Friday despite the dollar ending relatively flat. Both gold and silver were down -0.29% and – 0.55% respectively, with the volatilities inching lower on the day. Brent crude was also lower by -0.57% with the Brent 2-8 month spread also turning slightly wider. The Baker Hughes oil rig count came in at 180 vs 181 prior, carving a possible bottom but reinforcing the belief that US oil production is unlikely to return to Feb’s production levels for some time. In base metals, copper rebounded +1.06%, though the leader was zinc’s +2.26% gain.
Commodity currencies tracked the move in the risk trade. The loonie fell and pushed above 1.32, tracking the declining oil price, before closing below that level. Elsewhere, the pound yoyo-ed before closing a touch lower against the dollar, as the 200-day moving average comes into view and possibly slow the pound’s fall. Any bullish hopes would thus rest on a change of tactics from Boris Johnson in negotiating Brexit. CFTC longs appear to have faith as they increased their GBP longs vs last week by 7k. The euro rose +0.26% on the day but was unable to reclaim the highest levels from Thursday.