(ATF) Hong Kong: Financial markets appear fearful that the reopening of economies could be at risk from the unabated surge in infections as the global coronavirus crosses the 10-million mark. Investors dumped risky assets and braced for a setback to the projected economic recovery as governments rethink their decision to reopen and enhance their stimulus programmes.
Still some analysts remain confident ahead of a slew of economic data.
“We received a stark reminder this week that the fight against Covid-19 is not over, as new cases globally thrice reached new highs. Unsurprisingly, the number-one question we get from investors is whether this resurgence disrupts our call for a V-shaped recovery. The answer is no,” Morgan Stanley analysts said in a note. “We remain confident that the global economy will regain its pre-Covid-19 levels in four quarters and DM economies in eight quarters.”
Stock markets across Asia fell, with the Nikkei 225 tumbling 2.3%, Australia’s S&P ASX 200 off 1.51% and Hong Kong’s HSI benchmark has edged down 1.01%. Mainland China’s equity benchmark, the CSI300, retreated 0.71%.
Credit markets have started the week on a busy note as Sumitomo Mitsui Financial Group, Times China, Golden Wheel Tiandi and Zhejiang Changxing announced bond offerings with price guidance. Investor interest remains solid even as CDS spreads widen out in line with other risk markets. The Asia IG index is 2 basis points wider at 86/88 and sovereign CDS have moved out by 2-4 bps.
Later in the week, investors will gauge the impact of resumed activity in the world’s second largest economy.
“China’s PMIs will be especially closely watched given its earlier relaxation of virus-related restrictions. So far the data have shown encouraging strength, with business activity across manufacturing and services growing in May at the fastest rate since the start of 2011. The data for China may therefore help gauge the extent to which early rebounds in activity from lockdowns might fade,” Chris Williamson, chief business economist at IHS Markit, said.
Barclays analysts said they expected the Caixin manufacturing PMI to edge lower to 50.2 in June from 50.7 previously on an expected moderation in export-related manufacturing production. China’s NBS manufacturing PMI would have moderated to 50.2 in June from 50.6 in May as the pace of the recovery in high frequency activity data, including coal consumption by major power plants, slowed in June, they said.
The Asian PMIs are accompanied by official industrial production numbers for Japan and South Korea, with trade data issued in Taiwan, Malaysia and South Korea, all of which will help gauge the depth of second-quarter downturns.
“In most other Asian economies, manufacturing should have continued to slow albeit at a reduced pace than in May. India and Indonesia are likely to remain at the low end of the Asian spectrum, given worsening Covid-19 situations in these countries,” Prakash Sakpal, ING Bank’s senior economist in Asia, said.
“May retail sales figures from Hong Kong and Singapore should reflect the extent of the hit to domestic demand in these economies. We expect the worse, around 50% YoY contraction in sales in both economies, as rising job losses depress spending,” he added.
Weak consumer spending should keep CPI inflation under downward pressure in most reporting countries during this week in South Korea, Indonesia, and Thailand, with Thailand's continuing to lead the way down, Sakpal said.
Also this week, US data releases include the monthly employment report, which includes unemployment and non-farm payroll data. And Fed chair Jerome Powell will also give testimony before the Committee of Financial Services.
“Heading into a heavy laden indicator schedule that will determine whether recently instilled confidence over the unfolding economic recovery is indeed on solid footing, market participants will closely scour the incoming data performance before bolting into the long Fourth of July holiday weekend,” said Sam Bullard, senior economist at Wells Fargo.
US financial markets are closed on Friday, which would mean the non-farm employment numbers will be reported a day earlier on Thursday. A Bloomberg poll said the labour department will report a 3 million increase in payrolls.
Also on Asia Times Financial
Foreign Exchange: Yuan shakes off new virus cluster in NE China's Hebei province
# Japan’s Nikkei 225 tumbled 2.3%
# Australia’s S&P ASX 200 retreated 1.51%
# Hong Kong’s Hang Seng index edged down 1.01%
# China’s CSI300 dipped 0.71%
# The MSCI Asia Pacific index slipped 1.55%.
Stock of the day
Tianneng Power rose as much as 17% after the automotive lead acid battery maker said that its proposed listing of its spin-off was being considered by the Shanghai Stock Exchange and the spun-off unit had posted a profit rise of 30-40% in the six months to June.