Market Close Apr 02

Energy sector drives markets after oil soars

Markets buoyed by a recovery in oil prices after the US President said a truce would be reached in the spat between Riyadh and Moscow 

Energy sector drives markets after oil soars
Oil prices have risen after US President Donald Trump said Saudi Arabia and Russia would call a truce in their dispute over production levels. File pic: AFP

Trade of the Day: Oil surges lifting investor sentiment; yen and US Treasuries dip

Quote of the Day: “We now foresee a more substantial and long-lasting plunge in the US and Euro-zone due to more severe quarantine and restrictive social distancing policies, which in turn will likely hurt Chinese exports as well as overall growth. Against the backdrop of expected deep global recession, we lower China GDP growth forecast to 1.2% YoY for 2020 from 1.5% previously,” economists at BofA Securities said.

Stock of the day:  Oil and Gas giants CNOOC and Sinopec jumped by 8% and 9%, handily outperforming the broad market after oil prices surged by over 10% on hope that Russia and Saudi Arabia will end their price war and following a report that China, the world’s biggest importer will replenish stocks.

Number of the Day: 20% – Moody's Investors Service said 20% of 482 corporates it rates in the Asia Pacific have high exposure to coronavirus-related disruptions, and that these companies are sensitive to shifting consumer demand and global travel restrictions.

Tip of the Day: “We have downgraded Indian stocks from neutral to underweight within an EM equity benchmark portfolio. Notably, this bourse has lately underperformed despite collapsing oil prices. This is a manifestation of a worsening backdrop,” BCA Research said in a note on Thursday.

Financial markets recovered ahead of the US opening with European markets edging up after Asia recovered from a weak start following weak manufacturing data overnight. The Stoxx Europe 600 is up 0.2% and S&P Futures are 2.1% higher.

Oil 'truce' 

The mood was underpinned by a recovery in oil prices after US President Donald Trump said a truce would be reached in the spat between Saudi Arabia and Russia. Oil was also driven by a Bloomberg report that China, the world’s biggest oil importer, is replenishing its reserves to take advantage of low prices. WTI crude jumped 9.5% and Brent crude futures surged 11.36%.

China is powering ahead with the opening-up of the oil and gas industry chain in Zhejiang Pilot Free Trade Zone, officials said on Wednesday. The Zhejiang Pilot FTZ was established to export refined oil, and qualified refining and chemical integration enterprises within it were the first to begin exporting.

Earlier in Asia, Japan’s Nikkei 225 fell 1.37% and Australia’s S&P ASX 200 slid 1.98% but gains in other markets helped the MSCI Asia-Pacific ex-Japan benchmark rise 0.94%. Hong Kong’s Hang Seng index rose 0.84% and Korea’s Kospi index climbed 2.34%.

Relief measures continue to flow - India’s central bank unveiled plans to support exporters, state governments and financial institutions. The Reserve Bank of India delayed the implementation of the countercyclical capital buffer by a year, enhanced state government's short-term liquidity needs and relaxed export repatriation deadlines.

Investors will grapple with the much-awaited US non-farm payroll data due out on Friday and the earnings season in the coming weeks.

Large jobs loss expected

A poll conducted by Reuters showed economists expect the payroll data to show a loss of 293,000 jobs - the largest monthly drop since July 2009.

As the corporate results season draws near 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.

And yet investors are optimistic despite the sense that US is lagging European and Asian countries in batting the coronavirus pandemic with infections in America topping 215,000 as the global count approaches the million mark.

“It virtually guarantees horrific infections rate and death headlines, as well economic weakness and earnings collapse reports. Despite this, we expect US stocks to perform better than the rest of the world,” said Marija Veitmane, senior multi-asset class strategist at State Street Global Markets.

“The nature of the US stocks is the key to that outperformance. US stock indices has higher than average allocation to Technology and Health Care sectors – two best performing sectors this year. Consequently, it has lower weighting in Energy and Financial sectors - the weakest so far. Also, US stocks on average have much stronger balance sheets and profitability, which should make them a relative(!) safe haven now.”