Trade of the Day:
· Stocks, futures down as investors pause ahead of earnings season, economic data
· Oil pauses after recent rally
· US Treasuries catch haven bid
Financial markets retreated on Wednesday ahead of the earnings season and release of key economic data. The Stoxx Europe 600 index fell 1.4% and S&P futures were 1.4% lower.
“The kickoff of the earnings season will start to fill out some details within the outlines of the dire stream of recent macro numbers. Companies will still have a hard time giving guidance until they get a better sense of how quickly the coronavirus is contained, but they will at least offer a sense of how much pain they can withstand,” Christopher Smart, Chief Global Strategist & Head of the Barings Investment Institute, said.
“The hardest part today is judging how soon people learn to live with a lower, but still lingering risk of infection. More testing, better treatment and progress toward a vaccine will all help, but what’s so hard to assess now is how quickly they will get back to restaurants, theatres and hotels.”
In stocks, Japan’s Nikkei 225 eased 0.45%, Australia’s S&P ASX 200 fell 0.39%, China’s CSI300 edged down 0.74% and Hong Kong’s Hang Seng index fell 1.2%. Regionally the MSCI Asia Pacific index retreated 0.5%.
Oil prices reversed gains – Brent futures fell 1.7% and WTI is 3.3% lower.
Credit markets were unchanged from the morning as the mood was upbeat on supportive measures from central banks which assured liquidity conditions will remain flush. Compared to Tuesday, sovereign credit default swaps (CDS) are tighter with the Asia IG index a basis point tighter at 112/115. China’s 5-year CDS is steady at 38/41 bps, Indonesia has contracted by 1 basis point at 180/190 bps and Vietnam is 5 bps tighter at 245/295 bps.
On Friday, the world’s second biggest economy – China – will release a batch of key economic data. Besides GDP, it will also announce retail sales, fixed asset investment and industrial production numbers.
In a poll published on Wednesday, economists said China’s economy shrank 8.2% from a year ago in the first quarter – the first contraction since quarterly data started to be reported in the early 1990s.
Softening the blow
But authorities are moving rapidly to soften the blow.
China’s foreign exchange regulator said it would streamline or ease some rules to facilitate cross-border trade and investment. SAFE has allowed eligible companies to use overseas capital-raising for repayment of their onshore FX-denominated loans, whereas previously the repayment must be funded by firms’ FX reserves or proceeds from exports.
Also the People’s Bank of China offered 100 billion yuan via the one-year medium-term lending facility (MLF), cutting the rate to 2.95% from 3.15%.
“We expect 20bps more cuts on OMO/MLF rates, as well as 50-75bps broad-based RRR cuts (or equivalent) for the rest of this year, to accommodate fiscal easing. The next window for MLF rate cut could be around May 14th, when RMB 200 bn (yuan) of MLF will mature,” Morgan Stanley economists said in a research note.
Quote of the Day: “Hopes were high that an OPEC+ production cut would stabilise oils prices after their recent -20% decline. While a deal was reached and delivered over the weekend, the 9.7m barrel-per-day cut agreed failed to boost oil prices significantly. This leaves pressure on the major oil companies as markets appear unconvinced that the cuts are sufficient to compensate for the current demand-side shock,” César Pérez Ruiz, Head of Investments & Chief Investment Officer at Pictet Wealth Management said, while maintaining an underweight recommendation on oil stocks.
Stock of the day: Evergrande bonds rose by around 8% across all maturities after a recent sell-off amid worries that developers would be crimped by falling demand and unsold stock. Evergrande is one of China’s biggest developers and an active bond issuer.
Number of the Day: 10,000 – the number of employees ByteDance, the Chinese start-up behind the popular short-video-app TikTok, is looking to hire.
Tip of the Day: HSBC raised its price target on JD.com to $55 from $50 a share as the internet giant is due to report its earnings in May. Analysts Binnie Wong and Cleo Zhang expect to “see faster-than-expected recovery and earnings set to grow, more than doubling in 2Q20.”