Market Close Jul 20

Investors eye EU, US stimulus; China outperforms

China reforms on-track as it unifies bond market, raises investment cap; EU package to lower borrowing costs for peripheral members; US stimulus seen topping $3 trillion

Investors eye EU, US stimulus; China outperforms
People watch a movie in Ningbo, in eastern China's Zhejiang province on 20 July 2020, after China's cinemas  reopened after being closed for six months. Cinemas are subject to a strict set of rules, including screenings being limited to 30% capacity and the number of movies shown at a venue capped at 50% of its previous volume. Photo: Imaginechina via AFP.

(ATF) Hong Kong: Financial markets have turned cautious as EU leaders resumed efforts to save an $860-billion coronavirus recovery plan and investors awaited details of a new aid package in the United States, where the coronavirus infection count neared 4 million.

But China equity markets outperformed, after Beijing made changes that signalled to the world that its financial reforms drive remains on track.

This performance was also boosted by the China central bank’s sustained cash injection into the banking system. The China Banking and Insurance Regulatory Commission also raised the equity investment cap for insurers to 45% from 30% and authorities unveiled plans aimed at unifying its segregated bond markets.

The CSI300 rose 2.98% leading the regional gains on a day when the Nikkei 225 edged up 0.1% and the Hang Seng benchmark eased 0.12%. The S&P ASX 200 slid 0.53%.

Investors are now eyeing the renewal of congressional income support and stimulus measures in the United States, where over 3,754,000 people have been detected with the virus, and at least 137,000 people have died.  

“The surge in Covid-19 cases and deaths will likely lead to renewed stimulus,” said Steve Englander, Head of Global G10 FX Research and North America Macro Strategy, at Standard Chartered Bank.

“Democrats and Republicans have different priorities, but both want a pre-election package. Democrats probably have the stronger hand in legislation, with Republicans trailing in polls. We expect Congress to pass a large package, perhaps surpassing the Democrats $3-trillion House bill.”

Asian credit markets traded with a firm undertone with the benchmark Asia IG index one basis point tighter at 77/78 bps and sovereign CDS moving in 1-3 basis points. Primary markets remained busy with GS CaltexShanghai Pudong Bank, and China Huarong set to price bond offerings later in the day.

Also on Asia Times Financial

China turns divided bond markets into 'one-stop shop' 

This week: S Korea GDP may signal recession, China to hold rates

The role of bonds in a crisis 

China's central bank signals economy strengthening

 Japan's sinking exports raise risk of prolonged downturn

Foreign Exchange:.

Asia Stocks

# Japan’s Nikkei 225 edged up 0.1%

# Australia’s S&P ASX 200 slid 0.53% 

# Hong Kong’s Hang Seng index dipped 0.12%

# China’s CSI300 jumped 2.98%

# The MSCI Asia Pacific index edged down 0.12%.

Stock of the day 

New China Life Insurance rose as much as 11% after the announcement it will take over six institutions including Tianan Property Insurance Co Ltd, of China, according to the China Banking and Insurance Regulatory Commission.