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Markets make gains but earnings clouds hover

Trade of the Day: Stocks make tentative gains as oil edges higher; gold, yen and US Treasuries advance.

Quote of the Day: “Q1 have had Tesla written all over it, as Elon Musk’s rollercoaster ride is something special. Elon Musk’s electric car company went from reaching the sky, following an incredible short squeeze, to slamming the ground in just a matter of four weeks. For now the outlook depends on Chinese production starting to recover, which might get the Tesla ball rolling again. However, Musk could end up stuck in the mud of a recession,” Peter Garnry, Saxo Bank Head of Equity Strategy, said.

Stock of the day: CanSino Biologics rose as much as 11.2% after it said phase II clinical trials for a vaccine against coronavirus would resume soon.        

Number of the Day: $25 billion – The loss to the telecom industry as international travel collapses, cutting data-roaming revenues.

Tip of the Day: “We prefer up-in-quality and up-the-capital-structure exposures, especially those with strong policy support, over the next six to 12 months. Within equity markets, that means a preference for the US market and the quality and ‘min vol’ style factors. We also prefer credit over equities given bondholders’ preferential claim on corporate cash flows in a highly uncertain economic environment. We stay neutral on global equities on a tactical horizon, recognizing the wide uncertainties around the path of the outbreak in coming quarters, but see value for investors with long investment horizons,” BlackRock strategists said in a note.

Financial markets made tentative advances ahead of the earnings season with economic data and profit warnings already indicating the financial damage made by the still spreading coronavirus.

Better than expected trade data

Stoxx Europe 600 rose 0.9% and the S&P Futures are 1% higher after Asian stocks and bonds rose in cautious trade after China unveiled better than expected trade data.

The world’s second largest economy showed export growth in dollar terms registered a stronger-than-expected -6.6% change in March from a year ago and import growth was -0.9%. They were expected to shrink 13.9% and 9.8%.

“Despite the rebound, we believe trade growth will get much worse in Q2. The rebound in March’s export growth was mainly due to catch-up following delayed production and shipments as a result of lockdowns and travel bans in February,” Nomura economist Ting Lu said.

“Since the Covid-19 outbreak didn’t escalate in Europe and North America until late February, its impact on China’s exports to those major destinations will become more apparent in Q2, especially April and May.”

Japan’s Nikkei 225 surged 3.13%, Australia’s S&P ASX 200 climbed 1.8%, China’s CSI300 rose 1.93% and Hong Kong’s Hang Seng index advanced 0.56%. Regionally, the MSCI Asia Pacific index jumped 2.2%, even as gloomy forecasts loomed.

Oil prices clung on to recent gains but sceptics say the production cuts will be unable to keep up with the demand destruction and forecasts.

Brent futures are up 1.3% and WTI is 1.9% higher. In the credit market, Chinese investment grade spreads continued to grind tighter and primary markets are stirring back to life with Lenovo and Petronas pushing ahead with issuance plans. Credit default swaps (CDS) tightened with the Asia IG index 15 bps tighter at 113/118. China’s 5-year CDS has moved in by 9 bps at 38/41 bps and Indonesia has contracted by 32 bps at 180/190 bps.

While corporate earnings are expected to be universally bad, the worst was yet to come, analysts said.

“Earnings season apparently kicks off this week, with US banks and financial firms reporting their results. Markets are understandably a bit edgy ahead of these releases,” said Robert Carnell, Regional ING Head of Research, Asia-Pacific, who is based in Singapore. “The median lockdown date looks like March 24/25, so really only one week will be hit really hard. 2Q20 will surely be worse than whatever these numbers show.”

Still, the economic damage was seen widening in many parts of the world, with the extended lockdown in India and France likely to be followed by other countries with little evidence of a slowdown in the infection count.

India extended its nationwide coronavirus lockdown until May 3 in its battle against the coronavirus, triggering growth downgrades. Barclays slashed their GDP growth forecast further to 0.0% for calendar year 2020 from 2.5%, and to 0.8% for the 20-21 financial year from 3.5%.

Umesh Desai

Umesh Desai is the Executive Editor at Asia Financial. Prior to this he spent over two decades with Reuters News as Asia Pacific Chief Correspondent in Hong Kong and Bureau Chief in Bombay. Before becoming a journalist Umesh was a credit ratings analyst with Moody's arm in India - ICRA. A chartered accountant by training, Umesh began his career as an equity analyst. His Twitter handle is @umesh_desai


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