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PMI data rattles

Trade of the Day: Stocks and futures drop on US virus spread; US Treasuries and gold climb 

Quote of the Day: “Prisoner’s Dilemma illustrates the stark choices faced by countries in the Eurozone deciding whether to co-operate more or stay the same. The Eurozone bond market represents a large dynamic game where investors will observe the yield spreads moving up or down along with the probabilities of the choice to ‘co-operate’ or ‘stay the same’,” said HSBC strategists in a note.

Stock of the day:  Shanghai Junshi Biosciences rose as much as 8.6% after the drugmaker’s application for listing on the STAR market was approved, opening up another fund raising avenue.        

Number of the Day: 7.5 billion pounds. The amount paid out as dividends by major British banks last year. Lloyds, RBS, Barclays, HSBC, Santander and Standard Chartered said they would cancel their dividends for 2019 and refrain from setting cash aside for investor payouts this year. It was in response to a request from the Prudential Regulation Authority

Tip of the Day:  “Chinese stocks have outperformed global benchmarks by a wide margin. We are taking profits on our overweight position, and downgrading our tactical call on Chinese stocks to neutral,” said BCA Research in a note. “Chinese stocks are down about 10% year-to-date in US$ terms, versus a 23% decline in global stocks.

Financial markets continued to struggle in the face of weak PMI data across Europe with the Eurozone reading falling for a 16th successive monthly and reporting its lowest since mid-2012. The deterioration in manufacturing output was the greatest since April 2009 and the data was a harbinger of further gloom. 

“The concern is that we are still some way off peak decline for manufacturing,” said Chris Williamson, Chief Business Economist at HIS Markit while adding that besides the hit to output from factories closing, the near term could see both business and consumer spending on goods decline. “Company closures, lockdowns and rising unemployment are likely to have an unprecedented impact on expenditure around the world, crushing demand for a wide array of products,” he said. 

The hit to the economy could worsen as containment measures are seen intensifying particularly in the United States after President Donald Trump warned of a painful two weeks ahead even as the infections count surged past 870,000 with American cases approaching 200,000. A White House projection that 100,000 to 240,000 Americans will die from coronavirus is a further setback to market sentiment and investors are unlikely to start buying in a big way unless the pandemic is brought under control across the world. 

The Stoxx Europe 600 fell 2.8% and the S&P Futures slipped 2.9%.

“Rather than an L-shaped recovery, we forecast this time’s recovery to follow a V-shape path this time, with the US returning to its previous level of activity in the third quarter of this year,” said Keith Wade, Schroders economist and strategist drawing parallels with the global financial crisis. “The key risk to our baseline V forecast is a potential return of the virus in the third quarter this year, resulting in another shutdown in Q4.”

Asian stocks were rattled by the US assessment of the pandemic even as global equities registered their biggest quarterly drop since 2008. The Japanese Nikkei 225 fell 4.5%, the Hang Seng index dropped 2.19% and Korea’s Kospi index slid 3.94%. Australia’s S&P ASX 200 rose 3.58% on the back of gains by oil stocks as energy companies recover from a catastrophic fall triggered by the oil price war. The MSCI Asia-Pacific ex-Japan index dropped 1.92%.

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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