Markets Jun 04

Market upbeat ahead of ECB, US data lifts mood

But gains capped as superpower tensions simmer; Beijing said more carriers would be allowed to fly to the mainland after the US banned Chinese passenger airlines from arriving

Market upbeat ahead of ECB, US data lifts mood
Small business owners set up street stalls on the roadside in Yiling district in Yichang city in China's Hubei Province on June 3, 2020. Photo: Liu Junfeng / Imaginechina via AFP

(ATF) Investors are piling into risk assets ahead of a European Central Bank meeting later today, which is tipped to boost its bond-buying programme. US economic data was also better than expected.

Overnight, an ADP report on private payrolls showed a fall of 2.76 million in May — much less than the 8.75-9 million expected in various polls. This followed a report from the Institute for Supply Management that showed a positive performance within the US service industry.

ISM’s non-manufacturing index jumped to 45.4 in May from 41.8, still in contraction territory but turning higher after plunging on coronavirus woes. This pushed the Dow Jones Industrial Average up 2.1%, while the S&P 500 advanced 1.4% and the Nasdaq Composite 0.8% was higher.

“We believe that the economy in the United States will contract significantly and that GDP in the second quarter could decline by 30% to 40%,” Vanguard Group said in a note.

“Given the anticipated sharp second-quarter fall, we foresee growth in the third quarter in the low single digits and approaching double digits in the fourth.”

In Asia, Japan’s Nikkei 225 index is 0.1% higher off an early peak, while the Korean Kospi index added 0.33% and Australia’s ASX200 index advanced 0.25%.

Airline ban amid US-China tension 

Gains were capped even as tensions between Beijing and Washington continue to simmer. In the latest move Beijing said more foreign carriers would be allowed to fly into the mainland after the Trump administration banned, with effect from 16 June, Chinese passenger airlines from flying to the US.

Reflecting some of the edginess, Hong Kong’s Hang Seng benchmark was off 0.1% and China’s mainland benchmark CSI300 eased 0.2%.

“Despite the recent deterioration in relations, market sentiment remains upbeat with investors choosing to focus on hopes for an economic bounce and better-than-expected but still dismal economic data reports,” ING Bank economists said in a note. 

“Data reports for Thursday will focus on trade data out from the region and the US with the risk rally possibly intact as investors opt to look past risks associated with a possible US-China trade war and the civil unrest in the US.”  

Credit markets remain firm with the Asia IG index moving in by 2bps to 90/92 and sovereign CDS 2-10 bps tighter.

The primary market remains busy with Nan Hai Corp, Seazen Group, Zhenro Properties, PTT Exploration and KEPCO in the market with bond offerings.

Later in the day, the European Central Bank is expected to increase the size of its 750-billion euro ($669 billion) Pandemic Emergency Purchase Programme (PEPP), while keeping interest rates unchanged. The ECB delivers its policy decision at 1145 GMT and ECB President Christine Lagarde is due to hold a news conference at 1230 GMT.

“We expect the ECB to increase the Pandemic Emergency Purchase Programme (PEPP) envelope by 300-400 billion euro this week, and the Asset Purchase Programme by around 120 billion euro, including fallen angels in purchases and giving some clarity on PEPP reinvestment,” BofA Securities said in a note.

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