Markets Jun 12

Investors fear premature re-opening of economies

Waves of coronavirus infections still traumatising many countries despite moves to end lockdowns

by Umesh Desai
Investors fear premature re-opening of economies
Workers put on protective suits as they prepare for the burial of a Covid-19 victim in Azcapotzalco, Mexico City, on June 10, 2020. Photo: Alfredo Estrella / AFP

(ATF) Asian markets are fearful about further waves of coronavirus infections as parts of the world economy start opening up, with some experts saying the loosening of restrictions is premature.

“Some of the data from the United States does look bad and suggests a second wave following premature re-opening. This was evident more than a week ago. We have been noting it in these notes from time to time,” Robert Carnell, ING Bank’s Regional Head of Research, Asia-Pacific, said.

“We hear from various politicians overnight that the US will not shut down again. Maybe not. But the Mayor of Houston, one of the more affected areas in the resurgence of infections in Texas, is reported to be considering issuing stay home notices again. So some more surgically applied shutdowns can't be ruled out in infection hotspots. That isn't to say these will be adhered to.”

Overnight, the Dow Jones Industrial Average sank 6.9%, the S&P 500 tumbled 5.89%, while the Nasdaq Composite retreated 5.27% as the infection count in the United States crossed the 2-million-mark with the global tally topping 7.5 million.

This morning, Japan’s Nikkei index is down 1.52%, Australia’s S&P/ASX benchmark is 1.9% lower and Hong Kong’s Hang Seng index is 1.35% lower. China’s mainland benchmark the CSI300 had retreated 0.45%.

Regional economic data releases on Friday include South Korea's export-import index, Japan’s industrial production and China’s FDI.

Indian economy 'ugly'

India has a busy day ahead of trade, forex reserves and industrial output releases.

"May CPI inflation and April industrial production (IP) releases today should reinforce the ugly state of the Indian economy,” ING Bank's Prakash Sakpal said. “The continuing rapid rise of Covid-19 infections in India suggests the economy is poised to be much worse before it shows any signs of improvement. And that won't be anytime soon. India is now the fourth worst-affected country in the world. We now see a steeper 2.1% GDP fall in FY2020, revised down from -1.2% a month ago".

Credit markets continue to ease as markets digest the recent spate of issuance with the Asia IG index wider by 4 basis point at 92/94 bps. Sovereign CDS is 2-10bps wider. Still, Wynn Macau has issued price guidance for 144A/Reg S bonds due to price today.

In the week ahead, industrial production and retail sales data for the US and China, will drive investor sentiment as markets look for manufacturing and consumer trends in the world’s two largest economies.

“Industrial production and retail sales data for the US are updated for May, and will be eagerly awaited for confirmation that the worst of the economic downturn from the pandemic has passed,” Chris Williamson, chief business economist at IHS Markit, said.

“In Asia, the focus is on China with production and retail sales data eagerly awaited to assess the extent to which economic activity may be recovering after the relatively early relaxation of virus restrictions. Surveys show domestic demand driving the rebound in China, with trade dragging.”