The Daily Brief
Market Update Friday, 16 July 2021
Global Markets Asian shares headed lower on Friday as profit-taking in Taiwanese chip giant TSMC, despite record profits, weighed on other tech firms and broader risk sentiment, while a more dovish U.S. rates outlook kept bond yields near multi-month lows.
MSCI's broadest index of Asia-Pacific shares outside Japan lost 0.35%, weighed by a 1.2% fall in Taiwanese shares after TSMC's earnings on Thursday. TSMC, Asia's biggest firm by market capitalisation outside China, fell almost 4% following its earnings on Thursday. While the world's largest contract chipmaker posted record quarterly sales and forecast higher revenue for the current quarter, investors took profits, fearing its best times could already be behind it.
"Its earnings were excellent and to me, the market seems to be a bit overreacting," said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities. "But the fall in its profit margin led to the view that its growth momentum might be peaking out."
TSMC's fall weighed on many other semiconductor related shares in the region, with South Korea's Kospi down 0.6% and Japan's Nikkei losing 1.1%. Weakness in chip-related shares also helped to bring down the S&P 500 0.33% and the Nasdaq Composite 0.70% on Thursday. While those indexes remained near record levels, supported by the prospects of an economic recovery, investors were turning wary on riskier, less liquid assets.
Russell 2000 index of U.S. small cap shares dropped 0.6% to a near two-month low. Once-booming special purpose acquisition companies (SPACs), or "blank check companies", were completely out of favour, with Ipox Spac index hitting a seven-month low.
Investors instead flocked to bonds, after Federal Reserve Chair Jerome Powell reiterated that rising inflation is likely to be transitory and that the U.S. central bank would continue to support the economy. Powell on Wednesday pledged "powerful support" to complete the U.S. economic recovery from the coronavirus pandemic, a message he repeated on Thursday.
The 10-year U.S. Treasuries yield fell to 1.302%, edging near five-month low of 1.250% touched last week. The yield on inflation-protected U.S. bonds fell to minus 1.043%, a five-month low. Bond yields fell even as data earlier this week showed U.S. consumer inflation hitting its highest in 13 years. "Short positions in bonds simply don't work, so much so that you just lose vigour," said Arihiro Nagata, general manager of global investment at Sumitomo Mitsui Bank. "You can't fight the Fed when there is such a massive easing."
In foreign exchange, major currencies were little changed on the day but the dollar headed for its best weekly gain in about a month. "Delta variants are raging in countries where vaccination is limited. In a way, the dollar and U.S. assets appear to be bought as a hedge against that," said Sumitomo Mitsui's Nagata. The euro changed hands at $1.1807 while the dollar traded at 110.03 yen.
Gold on the other hand hit a one-month high of $1,834.3 per ounce and last stood at $1,831.3, supported by a dovish Fed.
Oil prices stayed under pressure after a compromise deal between leading OPEC producers and a surprisingly poor weekly reading on U.S. fuel demand. Reuters reported on Wednesday that Saudi Arabia and the United Arab Emirates had reached an accord that should pave the way for a deal to supply more crude to a tight oil market. A deal has yet to be finalised and the UAE energy ministry said deliberations are continuing. U.S. crude futures stood at $71.70 per barrel, near last week's low of $70.76. Brent futures traded at $73.54 per barrel.
Domestic Markets The South African rand fell on Thursday, as pockets of civil unrest remained following days of violence that has destroyed hundreds of businesses and left more than 100 people dead.
The rand was down 0.45% at 14.5500 against the dollar at 1500 GMT, retreating from a session high of 14.4500 earlier in the session.
The continent's most industrialised economy has been gripped by some of the worst violence in decades after the jailing of former President Jacob Zuma. The government has deployed more soldiers in two provinces where security forces were struggling to quell looting, arson and violence.
The unrest threatens to derail one of this year's star emerging market performers and highlights the chronic joblessness and poverty that has been papered over by a short-term export boom. "The rand remains vulnerable against the current local backdrop," Nedbank analysts said in a note.
Shares on the Johannesburg Stock Exchange (JSE) softened on Thursday as investors treaded cautiously after riots and looting in the country receded but the U.S. market, which affects the performance of almost 80% of local stocks, retreated from record highs.
The benchmark all-share index dropped by 0.53% to 67,539 points and the top 40 companies index lost 0.51% to 61,439 points.
The losses were broad-based as almost all major sectors retreated from the previous day's gains, with commodities and construction stocks posting the biggest fall of over 1%.
In fixed income, the yield on the benchmark 2030 government bond dipped 3.5 basis points to 8.955%, reflecting firmer prices. Corona Tracker
Source: Thomson Reuters
Market Overview
Notes to the table: • The money market rates are TB rates • “BMK” = Benchmark • “NCPI” = Namibian inflation rate • “Difference” = change in basis points • Current spot = value at the time of writing • NSX is a Bloomberg calculated Index
Important Note: This is not a solicitation to trade and CAM will not necessarily trade at the yields and/or prices quoted above. The information is sourced from the data vendor as indicated. The levels of and changes in the yields need to be interpreted with caution due to the illiquid nature of the domestic bond market.
Source: Thomson Reuters
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Disclaimer
The information contained in this note is the property of Capricorn Asset Management (CAM). The information contained herein has been obtained from sources which and persons whom the writer believe to be reliable but is not guaranteed for accuracy, completeness or otherwise. Opinions and estimates constitute the writer’s judgement as of the date of this material and are subject to change without notice. This note is provided for informational purposes only and may not be reproduced in any way without the explicit permission of CAM.