Markets May 05

Investors tiptoe back on economic hopes

Leaders in parts of the US, Hong Kong and Australia have relaxed restrictions to allow some economic activity as hospital numbers and coronavirus deaths decline

Investors tiptoe back on economic hopes
Staff wearing hazmat suits as a precaution against the coronavirus check the temperature of a driver at a checkpoint at Suifenhe, on the border with Russia and China's northeast Heilongjiang province. Photo: STR / AFP

(ATF) Investors are slowly incorporating risk amid reports of economies across the world opening up despite poor data, showing severe economic damage from the coronavirus pandemic.

In the United States, governors in some states like California and New York have gradually allowed some relaxation for economic activity as hospital numbers and new deaths decline. In Asia, Hong Kong and Australia have also allowed eased some restrictions, prompting expectation of economies starting up again.

The Hong Kong benchmark, the Hang Seng index, rose 0.6% and Australia’s S&P/ASX 200 added 0.88%, riding the extended rally in oil prices with eyes on the Reserve Bank of Australia’s policy decision later in the day. Japan and China are shut for holidays on Tuesday.

“The Australian Covid-19 outbreak is also proceeding in an encouraging direction, with very low daily case numbers, and movement restrictions eased. Prospects of a slow recovery ahead are gaining ground thanks also to some very supportive fiscal policy,” said Robert Carnell, ING Bank’s Regional Head of Research in Asia-Pacific. He did not expect any change in the RBA’s monetary policy.

“This is not the time to change policy, with the whole world economy on its knees and continued scope for possible second waves, so this meeting will be mainly about RBA growth projections,” Carnell said.

Credit markets are trading with a firm undertone and issuers have started pushing ahead with their bond offerings – CK Hutchison and Bank Mandiri are out with price guidance. The Asia IG series 33 index has narrowed 3 basis points (bps) to 120/122 bps and China moved in 2-1/2 bps to 50-1/2/52-1/2. South Korea CDS has narrowed by 1 bps to 35/37 bps. Australia was 3 bps tighter at 121/124.

Overnight, Hong Kong reported its GDP decreased by 8.9% in the first quarter of 2020 from a year earlier, an outcome worse than in the fourth quarter when it posted a 3% contraction. 

“Hong Kong's near-term economic outlook is subject to very high uncertainties, hinging crucially on the evolving global public health and economic situations,” the government said in a statement. Last week, Financial Secretary Paul Chan revised Hong Kong’s real GDP growth forecast for 2020 to -4% to -7%.

Markets are cautiously optimistic after Morgan Stanley and Goldman Sachs said this week that evidence suggests the global economy is bottoming out.

Investors will keep an eye on a host of economic data releases from the region with Indonesian GDP, and Singapore and Hong Kong retail statistics coming up today.