Asia Open: Signs of US economy reopening stirs market sentiment

Market Analysis / 7 Min Read
Stephen Innes / 17 Apr 2020

Market highlights:

Stock markets: Markets are revelling in President Trump's reopening plans and kicking into a higher gear as Boeing is said to resume commercial aircraft production at Puget Sound. 

Oil markets: More rapid recovery of global demand via reopenings could mean upside surprise to the current forecast.

Gold markets: Investors continue taking refuge from the storm under gold’s umbrella, but demand was getting crowded out a bit by a firmer US dollar and demand for US treasuries.

G-10 FX: With oil prices finding some comfort on the US economy’s reopening narrative, the commodity bloc of currencies have been off to the races this morning.

Asia FX: The Ringgit should trade on much firmer footing today as prices stabilize and global risk sentiment bubbles.

Stock Markets

Markets are revelling in President Trump's reopening plans and kicking into a higher gear as Boeing is said to resume commercial aircraft production at Puget Sound in a phased approach, beginning next week after suspending operations last month in response to the Covid-19 pandemic. Providing the roadmap to a plethora of companies likely to follow suit, the company has taken extra precautions and instituted comprehensive procedures to keep people safe and fight the spread of Covid-19; simultaneously arresting healthcare and economic concerns is precisely what the doctor ordered. Gilead also surged into the bell on a report that their Covid-19 vaccine is showing promise. 

In his daily update, President Trump’s key points included:

  • The Administration expects fewer deaths than the most optimistic projections and the economy to boom once country reopens
  • Critical in his daily brief is that a third of the country has no new cases reported in the last seven days and that the US has passed peak virus and that healthy Americans will return to work as soon as conditions allow, with reopening corporates borrowing a page from Boeing’s opening playbook.

For the Asia markets, this is providing a more than suitable lead-in for what could be a sobering assessment when China GDP gets delivered later this morning. Still, the steps taken by the PBoC and mainland regulators as domestic markets re-emerge from lockdown should help paper over the negative data fissures. But, as things start to return to routine, the post-panic phase economic reality checks could increasingly drive the moves in asset prices going forward. 

If we’re looking for a simple quantifiable reopening plan using international data benchmarks, New York Governor Andrew Cuomo said New York's pause had been extended, in coordination with other states, Bloomberg reported earlier.

What does that mean? In recent days, the daily increase in new cases in New York state has come steadily lower, taking it to around 5%, data from Johns Hopkins shows. Regular case increases fell to 3.5% on April 13, only to rise to 5.6% on Wednesday. How does that compare internationally? Well, in Austria and Spain, which have taken tentative steps to reopen, Johns Hopkins data showed the daily growth rate at in and around 2% for a sustained period before reopenings.

Market sentiment will continue to reboot and probably swivel as often as a barstool at happy hour once the focus shifts to the real economy immediately upon reopenings. 

Still, I can't grasp the constant references to previous bear markets and the "experts" as to why buying stocks is a bad idea. This slowdown is unlike anything before and is irrefutably and structurally different than any bear market on record. Imbalances in the world economy did not cause this mess. This meltdown was a deliberate policy-induced slowdown, so the pattern of recovery will be nothing like before and probably a lot more explosive at times. However, there will be numerous air-pockets to navigate.
 
Oil Markets  

For most oil traders, I suspect this week encapsulated the quarter. There’s emerging evidence of the virus peaking in key economies under Covid-19 lock-down, yet macro data as it relates to oil demand and the market in general presents another significant headwind. The anemic economic data seething out from the US and the IMF's sobering assessment of the global outlook have provided a reality check of a non-linear recovery for oil markets, despite Covid-19 news flow generally improving globally.

The Bank of Canada's Carolyn Wilkins provided a sobering reminder that while recovery for Canada could start over the summer, recovery from low oil prices could take longer. This view can be extrapolated across global oil price takers.

But the post-OPEC+ hangover continues with oil prices sliding as inventory builds present a key obstacle and are likely to continue to be across H1 (keep in mind the OPEC+ cuts don't kick in until May 1). Further calling attention to this orientation is the IEA Oil Market Report, which sharply cut its 2020 demand and observed that global storage was likely to be filled by mid-year.

Oil markets found baseline support from President Trump's US reopening plan, but with NYMEX crude prices closing ominously below the psychological WTI $20 per barrel for the second day running, it's suggesting downside risk remains the dominant factor.

If oil producers fail to address the medium-term structural oversupply situation adequately, oil prices could stay volatile with risks skewed to the downside for the next few months.

And while a more rapid recovery of global demand via reopenings or a more effective supply response could mean upside surprise to the current forecast, the market will likely rebalance  slowly as the OPEC+ deal in its current format won't offset 2Q demand. But visibility on the duration is a positive as this provides more wiggle room for shut-ins or even more storage to effectively bring the supply and demand equation to a more manageable reading.

Gold markets 

Institutional gold bids are pulling back 1650-75 levels this morning as a more optimistic near-term economic outlook takes hold after President Trump has introduced a workable roadmap to recovery while Boing has provided the exacting blueprint of how America returns to work.

In early Asia, gold prices are finding some support above the critical pivot $1690-1700oz level as the USD weakens and ahead of the vital China GDP reading. But if the S&P500 continues to rocket higher, 2900-level long gold positions could prove to be a weak hand heading into the weekend and we could see some stop-loss action trigger on a break of $1700oz.

Currency Markets

With oil prices finding some comfort on the US economy’s reopening narrative, the commodity bloc – particularly the AUD and CAD – has been off to the races and out of the gates this morning. A potentially faster pace of recovery in China is providing the fuel to push commodity prices higher today.

Also, the rise in US equities is suppressing cross-asset volatility and providing a positive backdrop for the currency market. However, the Euro has had a slower uptake as re-emerging fears about relationships within the European Union could lead to a widening in Bund/periphery spreads, especially vs. Italy. They could continue to weigh on the single currency.

The Ringgit 

The Ringgit should trade on much firmer footing today as prices stabilize and global risk sentiment bubbles on the favorable prospects of the US economy rebooting post-Covid-19.

The US equity market rise provides a good template of how the KLCI could move once the MCO is removed; the KLCI was already beating the odds yesterday on growing expectations. Japan’s PM Abe has proposed building an economy less dependant on China, so there’s some serious thought that Japanese companies will relocate to other ASEAN centers. Malaysia is a prime destination given the tax-friendly environment, excellent standard of living, ready set manufacturing facilities and the profusion of English as a second language.

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

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