Market Close Apr 03

Bourses retreat ahead of jobs data, earnings 

Oil steady as emergency meeting looms and infections pass the million mark 

Bourses retreat ahead of jobs data, earnings 
Waitstaff serve the only two patrons dining at a restaurant in a shopping mall in Singapore on April 3, 2020, as the government imposed tighter restrictions to combat the spread of the COVID-19 novel coronavirus. Roslan RAHMAN / AFP

Trade of the Day: Stocks falter, futures down as jobs data looms; oil remains steady ahead of emergency meeting 

Quote of the Day: “We project that global growth will trough at -5.2%Y in 2Q20. While we maintain our view that the virus will peak in April / May, slow resumption of consumption activity in China has led us to build in a slower pace of recovery post the virus’s peak. For 2020, the global economy will contract by 1.9% (more than the 2008 recession contraction of 0.5%) before growing by 5.6% in 2021,” mOrgan Stanley analysts said in a note.

Stock of the day:  Elec & Eltek Intl rose as much as 85% after the electronic component maker announced a proposed privatization by purchasing shares at HK18.07 per share.         

Number of the Day: 2.2 billion yuan The aggregate sales amount associated with the fabricated transactions identified by Luckin Coffee’s investigation committee. The stock price of the US-listed company plunged by 76% following the disclosure.

Tip of the Day:  “U.S. non-agency MBS, U.K. residential MBS and many other asset-backed securities (ABS) have been negatively affected during the period of market dislocation. We see these as resilient assets, with diversified pools of borrowers, and generally low leverage and loan-to-value ratios. We will look for attractive opportunities to acquire defensive assets when they present themselves,” said PIMCO analysts in an investor note.

Investors have turned cautious ahead of the earnings season with investors assessing the economic damage from the global coronavirus pandemic, which has infected over a million people now

Investors are bracing for earnings shocks with S&P 500 firms expected to enter an earnings recession in 2020, falling 3.7% in the first quarter and 9.6% in the second, Reuters News estimated.

Oil prices remained firm after US President Donald Trump tweeted that Russia and Saudi Arabia had agreed to cut production. Brent Futures are up 3.6% and US WTI crude is 4.5% higher and all eyes are now on an emergency meeting of the OPEC called by Saudi Arabia.

Services PMI from the EU and several European markets continued to be downbeat. The Euro area composite PMI new orders fell to an all-time low of 29.5 in March. 

BofA Securities analysts said in about a month's time, the number of new Covid-19 cases in Italy and the US is likely to have slowed to levels consistent with an easing of containment measures, which should allow for a sequential month-on-month improvement in activity and PMIs rising above 50.

“We assume a recovery in Euro area PMIs significantly slower than that, with the PMI remaining below 50 until August. Yet, even that would be consistent with meaningfully positive PMI momentum (i.e. six-month rate of change) by September, implying 25% upside for the Stoxx 600 to 400 by August. As a consequence, we remain positive on the market,” they said. The index which is down 1% on the day is around 310 and the S&P 500 futures is down 1.1%.

The US jobs data will be of particular interest after Thursday’s weekly unemployment claims jumped by 3.341 million to a seasonally adjusted 6.648 million. A Reuters survey of economists, said the US data release on Friday is likely to show non-farm payrolls dropped by 100,000 jobs last month.

But the jobs data are unlikely to reveal the true extent of the coronavirus inflicted damage.

“This morning’s payroll report is likely to show only the beginning of the US labor market impact from the COVID-19 pandemic,” said BCA Research analysts in a note. “These muted estimates reflect the reporting period of the Labor Department’s employment surveys. For the household survey that determines the unemployment rate, the March survey period was the week of March 8 – 14, i.e. before shutdowns in the US became widespread. This implies that the impact of the second half of March will only show up in April’s jobs report.”

Earlier, downbeat data from the world’s second- and third-largest economies brought down stocks across Asia. Both Jibun Bank Japan Services Purchasing Managers’ Index and China’s Caixin Composite reflected the hit to the economies from the coronavirus pandemic. 

The Nikkei 225 ended flat after climbing as much as 1.3%, Korea’s Kospi benchmark also ended up just 0.03% after trading higher most of the day. Australia’s S&P ASX 200 dropped 1.7%, Hong Kong’s Hang Seng index fell 0.2% and China’s CSI300 was 0.57% lower. Regionally, MSCI Asia Pacific index fell 0.93%.

The Jibun survey for March, showed service providers in Japan recorded a substantial drop in business activity that was just shy of the survey record seen in February 2009. The au Jibun Bank Japan Services PMI is compiled by IHS Markit from survey responses from a panel of around 400 service sector companies. The x dropped substantially in March to 36.2, from 47.0 in February, signaling a severe decline in private sector business activity from the previous month.

China’s Caixin Composite Output Index came in at 46.7 in March, the second-lowest reading in 11 years. The March reading marked the second lowest level since the survey began in 2005. A number above 50 indicates an expansion in activity, while a figure below that points to a contraction.