Market Close Jun 05

Markets higher ahead of jobs data, Fed meet

Oil climbs on tentative agreement; Fed and US non-farm payrolls data due later today, and more stimulus eyed as economic data disappoints

Markets higher ahead of jobs data, Fed meet
Agricultural workers harvest celery in Oxnard, California. The ranks of US workers laid off at least temporarily during the coronavirus pandemic exceeded 42 million, with 1.87 million new jobless benefit claims filed last week, Labor Department officials said on June 4, 2020. However the number of new claims filed in the week ended May 30 was 249,000 less than the week prior, indicating the unprecedented layoffs were slowing. Photo: Brent Stirton / Getty via AFP

(ATF) Hong Kong: Financial markets were strong ahed of the closely-watch US jobs report, with underlying sentiment boosted by the European Central Bank (ECB) announcing a bigger than expected bond-buying programme. 

Oil prices surged after OPEC+ reached a tentative agreement to extend record production cuts until the end of July. Brent rose 1.5% and WTI crude was 1% higher.

In Asia, Japan’s Nikkei 225 index climbed 0.74%, the Korean Kospi index jumped 1.43% driven by foreign investors’ purchases and Australia’s ASX200 index edged up 0.12%. 

Hong Kong’s Hang Seng benchmark rebounded off morning lows to finish 1.66% higher and China’s mainland benchmark CSI300 advanced 0.48%.

Emerging market stocks may extend their winning streak, analysts say.

“Emerging markets have rallied hard, and we are starting to worry about complacency. From an asset class perspective, rates and sovereign credit have least risk premium left, while equities have lagged and are more likely to outperform from here,” BofA Securities analysts said in a note.

Surprise boost

Overnight, the ECB’s pandemic emergency purchase programme (PEPP) announced an increase of €600 billion to a total of €1,350 billion.

“The increase in quantitative easing (QE) took markets by surprise, leading to a significant rally,” Azad Zangana, a senior European economist and strategist at Schroders, said.

Later on Friday, the US non-farm payroll data will hold centre stage. A Bloomberg survey expected the jobless rate to rise to 19.6%, the highest since the Great Depression era of the 1930s, following April’s 14.7%. Payrolls probably declined by almost 8 million after a whopping 20.5 million slump in April, the survey said.

According to a Reuters survey, the unemployment rate rose to 19.8% in May, and non-farm payrolls are expected to drop by 7.4 million.

“A phased re-opening of the economy is underway, and some activities curtailed by social distancing began recovering in mid-April. Still, details in the most recent GDP report suggest the economy is contracting at a 43% annual rate during the second quarter — worse than we previously expected. Accordingly, we revised down our projection of GDP growth for 2020 to -8.8%, below the current consensus. Unemployment claims suggest total job losses topped 30 million by May, pushing the unemployment rate to 19%,” Joel Prakken, chief US economist and co-head of US economics at IHS Markit, said.

Next week, financial markets will be keeping an eye on the US Federal Reserve, which has a rate setting meeting on June 10, for the first updated “dot plot” since December.

“This is most likely to be the Fed’s 'new' tool at the upcoming meeting, in our view. We doubt the Fed will implement or truly open the door to yield curve control. The idea of negative policy rates in the US is akin to a termite infestation. We expect chairman Powell to continue trying to eradicate it,” Wells Fargo analysts Michael Schumacher, Zachary Griffiths and Erik Nelson said in a note.

Credit markets remain firm with the Asia IG index moving in by 3-1/2bps to 87/89 and sovereign CDS 1-5 bps tighter.

The primary market is expected to remain busy in the days ahead after the recent performance of new issues. Seazen GroupZhenro PropertiesNan Hai Corp, and PTT Exploration  priced their dollar bond offerings overnight. KEPCO’s green bond with a “short to intermediate maturity” of a Reg S/144A dollar bond offering may follow soon.

Also on Asia Times Financial:

China bid to boost GDP with $142 bn of water projects 

Shanghai welcomes first foreign trade delegation

Hubei FTZ handed development boost

China reports April growth in service exports 

Foreign Exchange: As China bonds slump, yuan strengthens

Asia Stocks

· Japan’s Nikkei 225 climbed 0.74%

· South Korea’s Kospi index advanced 1.43% 

· Hong Kong’s Hang Seng index added 1.66%

· China’s CSI300 rose 0.48%

· The MSCI Asia Pacific index was 0.52% higher.

Stock of the day 

Construction firm Central Holding rose as much as 11% after announcing a strategic cooperation framework with Zhengqi Financial.