Markets Jun 17

Investors hopeful after US data, Powell comments

Fed chairman said some indicators pointed to stabilisation and a modest rebound; markets were up after US retail sales jumped 17%

by Umesh Desai
Investors hopeful after US data, Powell comments
People sit outside a car with a dog before watching a movie at the Skyline Drive-In cinema on June 16, 2020 in Brooklyn, New York City, amid the coronavirus pandemic. Photo: Angela Weiss / AFP

(ATF) Investor sentiment remains upbeat over an economic recovery after upbeat US economic data and Federal Reserve chairman Jerome Powell’s optimistic assessment. Asian markets digested the previous session gains and are in consolidation mode awaiting economic data which will confirm a bottoming out.

“Ironically (and mercifully) the recessions triggered by the coronavirus disease 2019 (Covid-19) pandemic in the developed economies are likely to have been short,” Nariman Behravesh and Sara Johnson, economists at IHS Markit, said in a note. The firm estimates that the recession lasted two months in the United States and eurozone (March and April) and three months in the United Kingdom (March, April, and May).

“For the US economy, this would be the shortest recession on record (back to the 1850s). The prior record for the shortest recession was the six-month-long downturn in 1980.”

Overnight, the Dow Jones Industrial Average advanced 2.0%, the S&P 500 added 1.9% and the Nasdaq Composite rose 1.8% after US retail sales jumped by the most on record and Fed chair Powell said “some indicators have pointed to a stabilisation, and in some areas a modest rebound, in economic activity”.

Inflation, he added, “is nonetheless likely to remain below our objective for some time” – a signal that rates will not be increased in the foreseeable future.

Mixed economic data

Economic data remains mixed as some domestic consumption numbers get a bump up from reopenings but the external environment remains constrained by the dislocations and lockdowns continuing in a number of countries.

Japan reported that exports in May fell 28.3% year-on-year, missing expectations and below the 21.9% year-on-year decline in April.

“Looking ahead, we suspect that May was the nadir for external trade as many of Japan’s trading partners started to emerge from lockdowns,” Marcel Thieliant, senior Japan economist at Capital Economics, said. He noted that the export climate index, a weighted average of the PMIs of Japan’s biggest trading partners, had bounced back strongly and Korean trade data for the first 10 days of June showed an improvement. Thieliant forecast a 7% quarter-on-quarter rebound in export volumes and a 2% rebound in import volumes in Q3.

Japan’s Nikkei 225 index dipped 0.74%, Australia’s S&P ASX 200 index was up 0.1% and both Hong Kong’s Hang Seng Index and China’s CSI300 index were marginally lower.

Credit markets are firm with the Asia IG index moving in by 1 basis point at 83/84 and sovereign CDS shrinking by 1-3 bps, as primary market bond mandates continue to swarm. Yincheng International, China Oilfield Services and Taiyuan Longcheng Development have announced hard currency bond mandates.