Markets Mar 26

Stimulus-fueled rally pauses

Investors question how huge support packages can be afforded; oil drops and Treasuries rally  

Stimulus-fueled rally pauses
People wearing face masks are separated from others by signs on seats designed to maintain 'social distancing' at Suvarnabhumi Airport in Bangkok. Photo: Jack Taylor/ AFP

Trade of the Day: Stocks pause after stimulus-induced rally; oil declines and US Treasuries rally 

Quote of the Day: “A big question for markets is who will ultimately pay for all the stimulus measures that have been put in place. The experience of the last decade suggests that zero rates and QE do not necessarily lead to runaway inflation in developed markets. Rather, uncomfortably-low inflation has left central banks unable to hit their targets and low on policy ammunition. So the "cost" of another bout of monetary easing in DM might be a move closer to "Japanification": sustained zero or negative policy rates, flat yield curves, falling inflation expectations and central bank impotence,” said BofA Securities in a note published on Thursday.

Stock of the day: Food company Yihai International jumped as much as 9.7% after it announced a 45% increase in net profit in the year ended Dec 2019. The company also announced several online initiatives to go onstream in the current year.         

Number of the Day:-1.1% Singapore industrial production contracted by 1.1%. This was better than the Bloomberg consensus of -3.2% but it did not stop the government from unveiling stimulus package worth S$48.6bn ($33.6bn). 

Tip of the Day:  ”The market is pricing in a crisis somewhere in between Global Financial Crisis and the Great Depression. The global recession should be short but the deepest in living memory. Overweight in Gold, defensive equities, US treasuries and EM assets. Credit being the most vulnerable asset class,” said Luca Paolini, Chief Strategist, Pictet Asset Management.   

Financial markets were in retreat mode as investors digested details about the $2 trillion US fiscal stimulus which contained no surprises. The focus has returned to battling the coronavirus spread amid worries more lockdowns would be required to flatten the curve and about the economic implications of such closures. 

This morning, Japan’s Nikkei 225 tumbled 4.51%, Korea’s KOSPI edged down 1.1% and Hang Seng index shaved off 0.74% with Australia and India, the only major markets with gains. The S&P ASX 200 advanced 2.3%, lead by energy stocks as oil prices posted three days of gains. 

India, where the sensex was 3.2% higher, unveiled a 1.7 trillion rupees ($22.6 billion) stimulus package targeted at the poor. “The direct fiscal impact of measures unveiled today will likely only be around INR626bn (USD8.3bn, or 0.30% of GDP), as most of the schemes involve utilizing dormant funds, transfers of goods rather than cash, off-balance-sheet spending, and limited but front-loaded budgeted fiscal transfers,” said Rahul Bajoria, Barclays analyst in a note. He kept his estimate of fiscal deficit, unchanged at 5.0% of GDP while adding: ”We also do not believe the government has finished announcing fiscal stimulus measures and expect more to be rolled out in coming weeks…”

Regionally, the MSCI Asia Pacific ex-Japan index was 0.52% higher.

The pandemic has claimed 21,353 lives globally and the infection count has now exceeded 475,000 globally. This has already sapped investor confidence even though US and Europe are working on details of massive fiscal stimuli following the Federal Reserve’s reduction of interest rates to near zero. 

European stocks are weaker with the SToxx Europe 600 benchmark down 1.7%. Wall Street is seen opening lower as the S&P futures are down 1.4%.