Asian Stocks Pare Gains Amid Caution; Dollar Rises

21/07/2021 Asian stocks pared early morning gains and equity futures wavered as traders continued to evaluate the economic impact of coronavirus flareups. Treasuries trimmed a decline and the dollar rose. MSCI Inc.’s index of Asia-Pacific shares remained on course to snap a three-day drop but country performance was mixed, with Japan higher and Hong Kong retreating. U.S. equity futures fluctuated after bargain hunters helped the S&P 500 to all but erase Monday’s slide in a rally led by cyclicals such as industrial stocks. European equity contracts are slightly higher. A rally in Treasuries has paused, sending 10-year yields back above 1.2%. It remains to be seen if the recovery in yields has legs amid lingering concerns about the delta virus variant that led traders to pare back bets on a Federal Reserve rate hike. The dollar advanced against major peers for a fifth day. Oil slipped and Bitcoin was back above the $30,000 level. Tencent trades 1.4% lower in HK. The Rand is weaker at 14.72 vs the USD, with the FTSE JSE Top 40 futures indicating a slightly lower start down 174 points or 0.3%.
Here are some key events to watch this week:

  • European Central Bank rate decision Thursday
  • Bank Indonesia rate decision Thursday
  • U.S. existing home sales Thursday
  • The Tokyo Summer Olympics begin Friday
    Yesterday the FTSE/JSE Africa All-Share Index closed up 1.4% to 65,724, recovering some of the previous day’s steep losses. The resource sector added the most, up 2.56%, with Sasol staging a 5% comeback and platinum counters also up more than 2% on the day. Banks and retailers also gained 2.1% and 0.99% respectively, despite a weaker rand, with luxury goods company Richemont adding 2.4% as reports showed that Swiss watch exports were up 71% year-on-year in June, a 13%increase from the same period in 2019 and an acceleration versus the previous month’s figures. The Rand was down 0.4% to 14.63 per US$, with the Yield on 10-year govt rand bonds that fell 0.20 bps to 9.35%.
    South African inflation is expected to slow to 4.8% in June, according to a median of 17 economists’ estimates in a Bloomberg survey. The slowdown may give the central bank, which targets price growth at 3%-6%, room to keep the benchmark interest rate on hold Thursday to support the economy. That’s as output is likely to take a knock from recent unrest, power cuts and the strictest coronavirus lockdown measures since May 2020.
  • South African Economy Set to Take $3.4 Billion Hit From Riots
  • South Africa Unrest May Halt Leading Indicator’s Upward Momentum
    NEWS:
  • South African Panel Recommends Municipal Vote Be Postponed
  • Delta Now 83% of New U.S. Cases; NYC Shots Drop: Virus Update
  • Taxi Wars Wrack Cape Town as Rival Operators Spar Over Routes
  • South African Regulator Says Sasria Will Settle Riot Claims
  • South African Court Blocks Bid to Unseal Ramaphosa Bank Records
  • Emerging-Market Investors Pile Into Bonds as Delta Spreads
  • Ex-South African Leader Zuma Secures Postponement in Graft Case
  • SoftBank Backs Food Delivery App Swiggy’s $1.25 Billion Funding
    EQUITY PREVIEW:
  • Imperial Logistics Confirms Talks With Transport Group J&J
  • Truworths Reports 57 Stores Impacted Directly by Looting
  • Pick n Pay Re-Opens Most Stores After South African Riots
  • Shoprite Stores Mostly Open After Last Week’s Riots in S. Africa
  • Richemont, Swatch Advance on ‘Encouraging’ Swiss Exports Data
  • Kumba Cuts Sales Guidance; 1H HEPS Seen Rising 171%-182%
  • Anglo American Sees FY Diamond Production 32M to 33M Carats
  • Amplats 2Q Total Palladium Production 334,400 Oz Vs. 228,500 Y/y

ECONOMIC DATA:

  • 10am: June CPI Core MoM, est. 0.2%, prior 0%
  • 10am: June CPI MoM, est. 0.2%, prior 0.1%
  • 10am: June CPI YoY, est. 4.8%, prior 5.2%
  • 10am: June CPI Core YoY, est. 3.1%, prior 3.1%
    EU/UK
    European stocks closed higher Tuesday, recovering from a sharp sell-off in the previous session on fears of a Covid-19 resurgence. The pan-European Stoxx 600 closed up by 0.5%, with basic resources shares climbing 1.5% while the travel and utilities sectors both fell 0.2%. It comes after a sharp sell-off Monday, when the European blue chip index ended the day down 2.3%, while on Wall Street the Dow Jones Industrial Average tumbled 2.1% to post its worst day since October. New Covid cases are surging in Europe and the U.S. as the delta variant spreads, largely among the young and unvaccinated, or the partially vaccinated. The U.S. is averaging about 26,000 daily cases in the last seven days, more than double the average from a month ago, according to CDC data. In earning news, Swiss banking giant UBS has beaten second-quarter earnings expectations, reporting net profit attributable to shareholders of $2 billion. UBS shares climbed 5.3% in response to the news. At the top of the Stoxx 600, Swedish industrial manufacturer Alfa Laval jumped 8% after beating profit estimates, while at the bottom of the index, compatriot home appliance company Electrolux fell more than 6.4% after issuing a supply chain warning.
    US
    Major averages rebounded Tuesday as investors stepped in to buy the dip from the Dow Jones Industrial Average’s worst day in eight months. The comeback rally gained steam steadily through the session as a bounce in Treasury yields soothed some concerns that a Covid resurgence would slow down the economic recovery. As the 10-year yield climbed back above 1.20%, the run in stocks increased. The Dow Jones Industrial Average rose 549 points, or 1.6%, to 34,511, following its 725 point-decline Monday. It was the biggest jump for the Dow in more than a month. The S&P 500 climbed 1.52% to 4,323 and the Nasdaq Composite added 1.57% to 14,498. The small-cap benchmark Russell 2000 index saw the biggest rebound with a 3% gain. Many of the stocks that were hit the hardest on Monday, on concerns about Covid-19′s delta variant, regained their losses Tuesday. Airlines and cruise companies led the rebound. American Airlines and Delta Air Lines, which lost 4% in the sell-off, added 8% and 5%, respectively, on Tuesday. Royal Caribbean gained more than 7%, after falling 4% on Monday. Bank shares bounced back too as bond yields climbed higher. JPMorgan shares rose 1.8% and Bank of America gained 2%. Regional banks led the financial sector, with Zions Bancorp and Regions Financial gaining 5% and 4%, respectively. Regional banks tend to trade closely along with the 10-year yield. Energy and industrial stocks — two of the hardest hit groups from Monday — also snapped back. Exxon Mobil rose more than 1%, General Electric jumped 5% and Honeywell gained 4%. Apple shares climbed steadily throughout the session to a 2.6% gain, erasing Monday losses.
    ASIA
    Shares in Asia-Pacific were mixed in Wednesday trade, following an overnight bounce stateside that saw the Dow Jones Industrial Average rising more than 500 points. In Japan, the Nikkei 225 rose 0.66% while the Topix index advanced 1.05%. Japan’s exports rose 48.6% in June as compared with a year earlier, according to data released Wednesday by the country’s Ministry of Finance. That was higher than a 46.2% increase expected by economists in a Reuters poll. Mainland Chinese stocks were also higher as the Shanghai composite gained 0.6% while the Shenzhen component rose 1.13%. Hong Kong’s Hang Seng index fell 0.37%. Elsewhere, the S&P/ASX 200 in Australia climbed 1.21%. Australia’s retail sales fell 1.8% in June as compared with the previous month on a seasonally adjusted basis, preliminary retail trade data from the country’s Bureau of Statistics showed Wednesday. The Australian dollar changed hands at $0.7312, still off levels above $0.742 seen last week. South Korea’s Kospi slipped 0.25%. The Taiex in Taiwan also fell 0.57%. MSCI’s broadest index of Asia-Pacific shares outside Japan stood little changed. The Japanese yen traded at 109.89 per dollar, weaker than levels below 109.5 seen against the greenback earlier in the week.
    COMMODITIES
    Gold steadied as investors weighed a stronger dollar and moves in Treasury yields amid renewed concerns over the impact of coronavirus flare-ups on the global recovery. For now, gold appears to be forming a consolidation pattern between $1,800 and $1,850. Spot gold fell 0.1% to $1,809.19 an ounce in London. Silver and platinum steadied, while palladium rose.
    Oil fell after a surprise build in U.S. stockpiles and as investors weighed the impact on demand from the rapid spread of the delta variant. West Texas Intermediate retreated 0.8% to $66.80 a barrel, resuming declines after an advance on Tuesday. The American Petroleum Institute was said to report an 806,000 barrel gain in U.S. crude inventories, according to people familiar with the figures. The climb would be first since May, if it is confirmed by the Energy Information Administration later on Wednesday.
    Nickel and aluminum slumped, leading industrial metals lower as investors monitor coronavirus flareups, a stronger U.S. dollar and a new warning from Beijing over high commodities prices. Nickel fell 2% to $18,310 a ton, while aluminum was down 1.3% and copper declined 0.5%. In China, the country’s top economic planner asked local governments to strengthen efforts to stabilize commodity prices.
    Iron ore futures slumped as China ratcheted up efforts to roll back steel production, dampening the demand outlook. Steel companies in Jiangsu province have received guidance to rein in output from last year’s level, researcher Mysteel reported, without citing anyone. Total crude steel production in the province jumped in the first half and with volumes expected to fall less than expected in July, the pressure to cut will center on August through December, it said. Iron ore for September delivery in Singapore dropped 2.9% to $201.30 a ton. Prices in Dalian slid 4% before the midday break, while steel rebar futures and hot- rolled coil edged lower in Shanghai. Meanwhile, China’s top economic planner asked local governments to step up commodity price monitoring and management of expectations. The nation has been seeking to crack down on surging raw material costs that have stoked concerns about inflation.