(ATF) Trade of the Day: Stocks rise on Fed’s support; oil slides after OPEC+ meeting disappoints; gold, yen and US Treasuries advance
Quote of the Day: “The visible improvement in credit growth is due to a combination of factors. First, we note bank loans to corporates almost doubled the amount a year ago, suggesting the (targeted) supportive credit policy took effect. Second, growth in corporate bonds issuances … due to looser issuance rules and declining bond yields. Within corporate bond issuance, we see developer bond issuance jumped to a 4-year high in March, which is likely to be used to finance land purchase. Third, we note off-balance-sheet lending returned to positive territory in March likely driven by the regulatory policy fine-tuning,” Barclays analysts said after lending in China climbed to 2.85 trillion yuan in March, with total social financing hitting a record high.
Stock of the day: Mitsubishi UFJ Financial Group rose as much as 4.8% after the Fed’s relief plan, which aimed at going through any way to help provide small businesses and households with sufficient liquidity.
Number of the Day: 60% - SoftBank founder Masayoshi Son pledged as much as 60% of his shares in the technology conglomerate as collateral against billions of dollars of personal loans in March, as the company’s plunging market value threatened to expose him to margin calls.
Tip of the Day: “Major economies are now in the deleveraging phase of the recession where the dominant focus is on improving balance-sheet quality. Although we expect both equities and credit to stay on the defensive for the time being, we now expect credit to outperform equities in risk-adjusted terms. We trim our allocation to global equities further in favour of IG credit while maintaining underweight allocations to HY credit. Although US IG credit is vulnerable to a high incidence of the 'fallen-angels' risk, Fed buying is an important backstop. However, HY will underperform as defaults rise,” Oxford Economics said in a note after the Federal Reserve’s $2.3 trillion support package.
Investor sentiment was broadly upbeat in holiday-truncated trade as the US Federal Reserve took additional actions to provide up to $2.3 trillion in loans to support the economy. But sentiment was dampened as an oil producers’ proposal to cut output by around 10% was seen as insufficient.
In a video conference between OPEC members and other major oil producers it was decided to reduce overall crude oil production by 10 million barrels a day. That will start on May 1, for an initial period of two months.
After, oil prices weakened, with the WTI down 9.3%.
These oil production cuts were decided to offset the slump in demand following the fast-spreading coronavirus pandemic which has infected over 1.6 million people and claimed over 95,000 lives globally.
The US central bank measures included an offer of loans up to $500 million to local governments, $600 million in loans of at least $1 million to firms that have up to 10,000 employees or less than $2.5 billion in revenue, and purchase of recently downgraded junk bonds.
Christopher Wood of Jefferies & Co said that as for the outstanding private-sector dollar debt, aside from US non-financial corporate-sector debt of $10.1 trillion at the end of last year, other areas of potentially risky US debt are leveraged loans totalling $1.2 trillion and private credit of around $900 billion. This compared with $2.7 trillion in US commercial banks’ commercial and industrial loans.
“But this is not the end of the dollar debt story. There is also a total of $12.1 trillion of dollar debt owed by offshore borrowers … which is why a surging US dollar is an indicator of deleveraging pressures. Still if the Fed ends up being prepared to buy all this debt, none of that need be a problem! Remember that old Wall Street maxim: “Don’t fight the Fed!,” Wood said.
Meanwhile, the Nikkei 225 was up 0.79% and Korea’s Kospi index was 1.33% higher but China’s stock markets were lower as data showed factory gate prices fell amid deepening deflation. The CSI300 dropped 0.62% and the SSE Composite Index was 1% lower after National Bureau of Statistics data showed PPI declined in March from a year ago and CPI (inflation) rose at a slower pace.
“Driven largely by a sharp decline in oil and base metal prices, PPI deflation deepened to -1.5% y/y in March from -0.4% in February. We expect PPI to remain deeply in deflation territory in April, given the declining iron ore and core prices and still low oil prices despite some rebound,” Barclays analysts said in a note.
Markets in the US, most of Europe, Australia, Hong Kong and Singapore were closed on Friday due to a holiday.