GLOBAL NEWS:
The U.S. stock market has rebounded swiftly despite a raft of terrible economic news, driven by a massive boost from the Federal Reserve, hopes of a successful reopening of the economy and possible coronavirus treatments, as well as investors’ fear-of-missing-out. But not everyone is buying the bounce. The S&P 500 closed on Friday at 2,874, more than 28% above its recent trough reached on March 23 and just under 18% below its record high close reached on Feb. 19. That rally has been spurred by the U.S. central bank going into overdrive to try to keep the economy from suffering lasting damage, as well as a $2.3 trillion federal stimulus package. The stockmarket has changed its mood swiftly since March 23 - when the S&P 500 dropped as much as 35% below its Feb. 19 peak. But trading has been volatile. Since then the index has closed up more than 1% in ten sessions with its biggest daily gain at 9.4% on March 24. It has fallen more than 1% six times and the deepest cut was 4.4% on April 1. The turnaround in optimism comes against an awful economic picture. Data on Thursday showed a record 22 million Americans have sought unemployment benefits over the past month, manufacturing activity in the mid-Atlantic region plunged to levels last seen in 1980 and homebuilding tumbling by the most in 36 years in March. That followed dismal reports of a record drop in retail sales in March and the biggest decline in factory output since 1946. While policy moves like those by the Fed and congressional stimulus programs may deserve big reactions if risks are removed, Levkovich says he is looking at fundamentals and worries about “difficult-to-assess issues such as the potential for second wave infection outbreaks as the economy re-opens.” Bernstein argues that if economic progress in China - the first country to report coronavirus cases- is any guide it doesn’t bode that well for the U.S economy in the near term.
China cut its benchmark lending rate as expected on Monday to reduce borrowing costs for companies and prop up the coronavirus-hit economy, after it contracted for the first time in decades. The one-year loan prime rate was lowered by 20 basis points to 3.85% from 4.05% previously, while the five-year LPR was cut by 10 bps to 4.65% from 4.75%. The move was the second cut to the lending benchmark rate this year, and the latest reduction in one of China’s key lending rates. Most new and outstanding loans are based on the LPR, while the five-year rate influences the pricing of mortgages. All 52 participants in a Reuters survey had expected a reduction in the LPR at its monthly fixing. Most had forecast a 20 bps cut in the one-year rate but a more modest 5-10 bps in the five-year as Beijing tries to keep a lid on property prices. Data on Friday showed the Chinese economy shrank 6.8% in the first quarter from a year earlier as the virus and tough containment measures shut down factories and shops and put millions out of work. That was the first contraction since at least 1992, when quarterly records were first published. While the country is restarting its economic engines, analysts say activity could take months to return to pre-crisis levels, with the likelihood of a global recession adding to the pressure. The LPR is a lending reference rate set monthly by 18 banks. The People’s Bank of China revamped the mechanism to price LPR in August 2019, loosely pegging it to the medium-term lending facility rate.
Caution gripped Asian share markets on Monday on expectations a busy week of corporate earnings reports and economic data will drive home the damage done by the global virus lockdown, while a glut of supply sent U.S. crude spiraling to 20-year lows. Japan reported its exports fell almost 12% in March from a year earlier, with shipments to the United States down over 16%. Early readings on April manufacturing globally are due on Thursday and are expected to show recession-like readings. MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.2% in slow trade, with a pause needed after five straight weeks of gains. Japan's Nikkei fell 0.9% and Shanghai blue chips 2.4% even as China cut benchmark interest rates as widely expected. E-Mini futures for the S&P 500 ESc1 slipped 0.2%, having jumped last week on hopes some U.S. states would soon start to re-open their economies. The S&P 500 has still rallied 30% from its March low, thanks in part to the extreme easing steps taken by the Federal Reserve. The Fed has bought nearly $1.3 trillion of Treasuries alone, and many billions of non-sovereign debt it would historically have never gone near. The rebound in the S&P 500 therefore likely overstated optimism on the economy, Jones argued, noting European benchmark equities indices and U.S. small cap indices were still in bear market territory. Bond markets suggested investors expected tough economic times ahead with yields on U.S. 10-year Treasuries steady at 0.64%, from 1.91% at the start of the year. That decline has shrunk the U.S. dollar’s yield advantage over its peers and left it rangebound in recent weeks. So far in April, the dollar index has wandered between 98.813 and 100.940 and was last at 99.837. The dollar was a fraction firmer on the yen on Monday at 107.77 but again well within recent ranges, while the euro idled at $1.0868. Gold had recoiled to $1,679 per ounce, having touched a 7-1/2 peak of $1,746.50 last week.
Indian steel demand is expected to plunge to multi-year lows in 2020, hit by slowdowns in the construction, automotive and rail sectors as India fights the coronavirus with a protracted lockdown, a leading industry body said. Steel demand in India is set to contract 7.7% in 2020 with “significant downside risks”, the Indian Steel Association, which represents some of the top steel producers, said in a note. ISA had estimated in February that the steel demand in calendar year 2020 would grow by 5.1% to touch 106.7 million tonnes. We have now revised the steel demand forecast to 93.7 million tonnes. Indian Prime Minister Narendra Modi has extended the nationwide lockdown until May 3, but the federal government has allowed states to restart some activity amid economic distress in rural areas. The lockdown’s impact on economic activity will dent steel demand by nearly 13 million tonnes, Arnab Kumar Hazra, Assistant Secretary General at the Indian Steel Association, told Reuters, adding that demand growth is at a multi-year low. Most steel companies have faced disruptions and suspended operations at some of their plants. Late last month Steel Authority of India Ltd, the country’s largest state-owned steelmaker, said some customers had cancelled orders because of port disruption as the lockdown hobbles movement of goods.
Gold prices fell to a more than one-week low on Monday as the dollar firmed and as investors remained optimistic that the U.S. economy might reopen soon from lockdowns that were enforced to contain the novel coronavirus’ spread. Spot gold fell 0.5% to $1,675.92 per ounce by 0038 GMT, having touched its lowest since April 9 earlier in the session. The metal slumped about 2% on Friday. U.S. gold futures slipped 0.7% to $1,687.20. The dollar strengthened 0.1% against key rivals, making gold costlier for investors holding other currencies. U.S. Democrats and Republicans are near agreement on approving extra money to help small businesses hurt by the pandemic and could seal a deal as early as Monday, Trump said, despite hopes for a deal on Sunday. Japan’s exports fell 11.7% in March from a year earlier, Ministry of Finance data showed, reflecting a sharp drop in external demand due to the pandemic. Physical gold demand in China continued to be in the doldrums last week as the coronavirus-led restrictions stalled activity, with dealers in the top consumer offering massive discounts. Speculators increased their bullish positions on COMEX gold and cut them in silver contracts in the week to April 14, the U.S. Commodity Futures Trading Commission said on Friday. Palladium rose 2.4% to $2,207.81 per ounce, while platinum fell 0.9% to $768.12 and silver eased 0.3% to $15.08.