News and Market Analysis

Asia Open – Moderna sneaks ahead of Pfizer

Overnight Bullets

  • Asia: Hong Kong unemployment seen rising to 6.7%; Singapore exports due
  •  Fed VC Clarida: FOMC will continue assessing effectiveness of bond buying
  • Wall Street rallied on Moderna vaccine news; tech is lagging
  • Treasuries were relatively quiet as variety of factors monitored
  • U.S. Empire State index fell -4.2 points to 6.3 in Nov from 10.5 in Oct
  • Canada’s manufacturing shipments grew 1.5% in Sep after -1.4% Aug drop
  • Trump Fed nominee Shelton likely to be confirmed, unprecedented politicization
  • Dollar softer amid risk-off positioning; MSCI Asia-Pacific hit best level since 1987
  • ECB Vice President Guindos highlighted downside risks to economic outlook
  • Even with Vaccine ECB Remains on Course to Strengthen PEPP

Asian Open

Asia Market Outlook (November 17)

Wall Street rallied overnight as news of Moderna’s new vaccine supported strong gains, adding to
Friday’s record highs on the Dow and S& 500. The Covid vaccine reportedly has 94.5% high efficacy and
should be easier to distributed since it can be stored at refrigerator temperatures versus the ultra-cold
needs of Pfizer’s. The Dow hit record intraday highs, though wasn’t able to test the 30k mark, while the
S&P 500 firmed over the 3600 level. The NASDAQ struggled in early trading as investors rotated out of
tech, though the index managed gains nonetheless. Core European bourses were higher, with the CAC
40 up 1.70%, the FTSE up 1.66%, and the DAX 0.47% higher. Trading in bonds was relatively quiet as the
markets assessed the new information in light of rising virus cases. Treasuries. Treasuries were little
changed as overnight losses were trimmed. The long end marginally underperformed with the bond
yield fractionally higher at 1.659% and the 10-year at 0.903%, while the 2-year dipped slightly to 0.177%.
The selloff from October has left bond bears on hold for now. The 10-year has yet to breach 1.0% as
even with a vaccine, the economy’s recovery is seen taking some time. There are also some expectations
the FOMC could decide on extending QE at its December meeting given Chair Powell’s focus, and
echoed by other Fed officials, on downside risks. Core EGB yields moved higher in the PM session as
stocks extended their rally. Bund and Gilt yields closed slighlty higher with the Gilt up 1.1 bps to 0.346%,
while the Bund inched up 0.4 bps to -0.547%. Eurozone peripheral bonds outperformed, against the
backdrop of a round of dovish ECB comments that left the central bank on course to strengthen PEPP
and TLTRO programs at the December meeting.

Today’s regional calendar has Hong Kong’s October unemployment, which likely rose again to a record
6.7% from 6.4%. It’s been tracking higher since holding at a 2.8% clip from April 2018 to June 2019.
Singapore’s October non-oil exports are seen slowing to 5.5% y/y from 5.9% previously.
In Europe, the docket is thin again and features Italy September trade, and Norway Q3 GDP.
In the U.S., the calendar picks up some with October retail sales, seen up 0.7% from 1.9% overall, and up
0.8% from 0.6% on an ex-auto basis. October industrial production is forecast to have rebounded 1.7%
from -0.6% previously, while capacity utilization should rise to 72.8% from 71.5%. October import and
export prices are penciled in at 0.3%, after respective gains of 0.3% and 0.6% in September. The
November NAHB housing market index is expected to dip to 84 from 85 in October. September business
inventories are expected to rise 0.6% from the prior 0.3% increase. September Treasury TIC data are
due, along with weekly chain store sales. There is Fedspeak from Chair Powell, Barkin, Bostic, Daly,
Kashkari, and Rosengren. Today’s earnings calendar has reports from Walmart, Home Depot, Sea
Limited, Warner Music Group, Autohome, Aramark, and Kohl’s.

FX Overnight

N.Y. FX Summary (November 16)

The Dollar firmed up some in London morning trade, seeing the DXY head from one-week lows of 92.47
to 92.84 in early N.Y. Risk-on conditions through the N.Y. session later weighed some on the greenback,
as Wall Street jumped to record highs on the Moderna Covid vaccine news. USD moves overall though,
were minimal. For data, the November Empire State index was worse than expected, though had little
market impact. While markets cheered the new vaccine, it will still be months before it will be
effectively distributed, and the surges in Covid cases in Europe and the U.S. will continue to result in
tentative expectations for economic recovery, and on-again, off-again bouts of risk-on and risk-off
conditions. For now, we may continue to see a lot of USD market churn inside of relatively narrow
ranges, though longer term, with the Fed’s lower for longer policy stance, the USD may come under
pressure in the coming months, as growth returns with inflation, while the Fed remains near ZIRP on the
policy front.

EUR-USD topped at one-week highs of 1.1869 in London trade, later opening in N.Y. near 1.1845, before
bottoming at 1.1814. Early fading of vaccine driven equity gains supported the USD briefly, though as
the Dow later printed record intraday highs, EUR-USD made its way back to 1.1845 into the London
close. The hurt remains out in the near-term on EUR-USD direction, with moves for the most part
continuing to be driven by risk-taking levels. Bigger picture, this dynamic may change as vaccine
distribution gets underway over the next few months. Monday’s market narrative called for a lower USD
in the new year, as the Fed remains in uber-easing mode, and as U.S. equity valuations remain high
relative to the rest of the world.

Cable fell from 1.3243 to 1.3166 in London, though the N.Y. session was relatively uneventful from
there, with GBP-USD managing just a 1.3167 to a 1.3204 trading band. Brexit remains front and center.
The coming week was being touted as the ‘final final’ deadline for a future relationship deal to be
reached to allow time for the ratification process ahead of the UK’s departure from the common market
and customs union on January 1, but it has become clear that negotiations could be pushed further out
still. France’s EU minister said on Friday that a “fixed, scientific deadline” has never been set, but if this
happens after the end of November “we will be in trouble.” There has still not been a breakthrough in
negotiations between the EU and UK. Evidently, given the pound’s performance, the prevailing market
expectation remains that there will be a last-minute climbdown and the two sides will strike a deal,
which is what we anticipate.

USD-JPY spiked up from near 104.60 to 105.14 ahead of the N.Y. open. The move higher came after
Moderna announced its Covid vaccine, which apparently could be a game-changer for the pandemic in
the coming months. The risk-sensitive Yen took a dive as global equity markets surged. USD-JPY gains
were pared in early N.Y., as stock futures came off their highs, and as the markets again came to the
realization that a rollout of vaccine is still months away, and new cases continue to soar in the U.S. and
Europe. USD-JPY later pulled back to N.Y. session lows of 104. 52.

USD-CAD fell from overnight highs of 1.3124 to 1.3066 at the North American open. The CAD
strengthened as oil prices rallied over the $42.00 mark, and up over 4% from Friday’s close on the
Moderna vaccine news. In addition, talk continues to circulate that OPEC+ may extend its production
cuts beyond the start of the new year. Canadian manufacturing data showed broad improvement in
September, though had little FX impact. USD-CAD has since edged up over 1.3090, as equity futures
shed some early gains, and as the USD more broadly makes some upside headway. Resistance is now at
the overnight highs, with support at Thursday’s 1.3056 low.