Markets May 06

Asia cautiously optimistic as economies reopen

But investors are monitoring the 'blame game' between Washington and Beijing over the coronavirus pandemic

Asia cautiously optimistic as economies reopen
An airport employee wearing a helmet with a thermo-scanner to screen passengers and staff for Covid-19, right, scans a fellow airport worker at boarding gates on May 5, 2020 at Rome's Fiumicino airport. Photo: Andreas Solaro / AFP

(ATF) Asian markets are broadly higher but investors are monitoring the 'blame game' between Washington and Beijing over the coronavirus pandemic even as economists forecast a bottoming out of the global economy.

In a reflection of the tensions between the world’s two biggest economies, mainland China stocks are down, with the CSI300 off by 0.54% as trading resumed after the holiday break.

The Hang Seng index is up 0.78% and Korea’s Kospi index has climbed 0.7% helped by Hong Kong’s pledge to relax the virus restrictions starting Friday and South Korea’s easing of social distancing rules beginning Wednesday.

And while US President Donald Trump pushed the country to reopen, caution abounded.

“Investor sentiment will remain fragile with investors weighing plans to accelerate the pace of the US reopening with concerns about a possible second wave of the virus in the fall. US President Trump urged US governors to reopen the economy with reports that the White House would soon wind down the Covid-19 task force,” ING Bank said in a note.

Credit markets remain on firm ground as central banks across the world are seen keeping rates at record lows, triggering a hunt for yield income among investors. Sovereign CDS moved in by 3-5 bps for the high yielders and Sun Hung Kai and Sinopec have announced bond offerings expected to price later today. Sinopec has already logged orders in excess of $7.5 billion and Sun Hung Kai demand has exceeded $1 billion.

Regionally, the MSCI Asia Pacific ex-Japan index rose 0.45% with oil prices flat to marginally weaker.

Overnight, the Dow Jones Industrial Average added 0.56%, the S&P 500 advanced 0.90%, and the Nasdaq Composite climbed 1.13%.

“A number of the high-frequency indicators we track suggest that the global economy is in the process of bottoming out,” said Morgan Stanley in a report. “Consumers’ future expectations have improved, mobility trends have moved up from their troughs and consumer spending is contracting more slowly than in the early weeks of the outbreak.”

'Spitting poison'

Markets are tracking closely the war of words between United States and China. US President Donald Trump’s accusation that Beijing deliberately mishandled the outbreak and Secretary of State Michael Pompeo's claim of “enormous evidence” that the coronavirus outbreak sprung from a Chinese lab was met with strong retaliation. China’s official Xinhua News Agency said Pompeo was speaking “nonsense,” and a newscaster from state-run China Central Television accused him of “spitting poison.”

A steady stream of abysmal economic data is also keeping markets on the edge with investors eyeing China Caixin Purchasing Managers' Index (PMI), Hong Kong PMI, EU PMI and retail sales and US employment data to be unveiled later.

“Fed officials continued to signal the probable contraction in economic output starting in the second quarter. Investors may also gain direction from US ADP jobs data later on Wednesday and China’s Caixin services data out on Thursday. And even as economies across the world reopen,” ING analysts wrote in a note on Wednesday.