Market Close Mar 30

Investors brace for dismal economic data

Extension to US coronavirus restrictions deepens gloom; gold, oil weakness not helping  

by Umesh Desai
Investors brace for dismal economic data
Pedestrians pass a window display showing the day’s performance on the Tokyo Stock Market. Photo: AFP 

Trade of the Day: Stocks and futures stay weak; US Treasuries firm; gold and oil softer 

Quote of the Day: “There’s going to be a shortfall in medical supplies, despite the effort by the U.S. and other countries to curtail the impact with a major ramp up in domestic production. Because of the return of Chinese industrial production, and the conversion of many companies away from their traditional businesses to the production of medical supplies, China is becoming the go-to source for other countries in desperate need of supplies,” said Gustav Ando, Head of Life Sciences and Industry Services, IHS Markit in a note.

Stock of the day:  Gas supply company ENN Energy jumped as much as 4.5% in a weak market as the company announced a 40% jump in cash flow from operations and a decline in gearing ratio.          

Number of the Day:$9.9 billion The total IPO proceeds raised by Shanghai, the world’s top contributor to the IPO market. NASDAQ and NYSE were second and third in the ranking list.

Tip of the Day:  “Even with the coronavirus outbreak, “onshore” China A-shares have outperformed “offshore” China H-shares this year, and significantly outperformed equities in the US, Europe, Japan and emerging markets. Given that China A-share companies get almost all their revenues domestically, they are likely to have an advantage over exporters amid a slowing global economy,” said Allianz Global Investors’ analysts Christiaan Tuntono and Anthony Wong.

Markets continued to sell off as the world’s biggest economy partially downed its shutters with the Centers for Disease Control and Prevention issuing travel advisory for three states, and US President Donald Trump abandoned his plan to loosen the social distancing guidelines by Easter. The prospects of more stringent lockdowns and its economic impact is spooking markets even before a batch of economic data is released during the week.

So even though there was a surprise reduction in China’s benchmark repo rate to a record low, worries about the recessionary conditions in rest of the world raised questions as to who would buy goods manufactured by the world’s second biggest economy.

The S&P futures are down 0.4% and the Stoxx Europe 600 index are 1.3% lower ahead of a slew of economic data.

There is unanimous agreement that unlike past global crises, the trajectory this time will be determined by non-financial factors making it difficult to accurately predict the end of the looming recession. There appears to be no signs of success in reining in the spread of the pandemic with the infections count in excess of 732,000 and the death count now surging to 34,686 globally.  

The economic news flow remains gloomy. Data published on Monday showed Euro area and the European Union economic sentiment indicators plunged, as did the employment expectation indicator and industry confidence decreased significantly. Later in the session, indicators like US home sales and the Dallas Fed manufacturing business index are awaited. 

Earlier in the day, Japan’s Nikkei 225 declined 1.57%, Korea’s KOSPI edged down 0.04% and the Hang Seng index retreated 1.32%. Australian stocks roared back after last week’s retreat, and the S&P ASX 200 soared 7%, led by healthcare stocks and a deadcat bounce from the beaten down banking sector. Regionally, the MSCI Asia Pacific ex-Japan index fell 1.71%. 

The week ahead is crammed with data releases ranging from PMIs to retail sales to labour data from major economies and culminating in release of the much watched US non-farm payrolls data. The jobs data gains more significance after last week’s report showing an historic jump in US jobless claim to 3.28 million. A Reuters poll showed economists expect the payroll data to show a loss of 293,000 jobs - the largest monthly drop since July 2009.

Economic downgrades continue to rain -  JPMorgan economists forecast a two quarter contraction in the US and Euro area downgrading its forecast for the world’s biggest economy significantly. It expects the US economy to contract -10% and -25% in the first two quarters lowering their forecast from the earlier -4% and -14%. 

The International Monetary Fund Managing Director Kristalina Georgieva said the global economy has already entered a recession “as bad or worse than in 2009.” But she said China is ahead of the rest of the world in terms of being impacted by the coronavirus, having taken containment measures and now stepping up production. “China doing better in 2020, is very important for China. It is also very important for the rest of the world given China's share in the world economy,” she said.