A positive start as markets revel in the COVID-19 curve-flattening scenario
A positive start to the week for equities, led by US futures, suggests that investors are paying more attention to nascent signs of stabilizing coronavirus case metrics in Western Europe (where there were fewer daily casualties in Italy, Spain and France) and the US, than on economic data.
US Vice President Pence noted in a press conference that "we're starting to see cases – and most importantly losses and hospitalizations – begin to stabilize." US health officials said that these signs (i.e. of a slower rate of increase) were evident in Washington and New York states, where the outbreak has been most severe.
Indeed, this is fantastic news to markets in desperate need of something positive on the health front and further suggests that lockdowns designed to prevent overloading healthcare systems are working just like the blueprint in China suggests. Regardless of the economic outcome, staying at home is pretty much the answer.
That one practice flattens the curve faster than people understand, and we will worry about what lies at the other side of the COVID-19 canyon when we span that gap.
But the trade-off between economic lockdowns and coronavirus casualties needs more data. Getting back to work early or reducing social distancing measures could quickly drive governments to reimpose lockdown. A record one-day increase of new coronavirus cases in Singapore is a perfect example to suggest that economies will not open up until the daily case count slows significantly.
Nonetheless, in a market starved for good news on the virus health front, a day with fewer COVID-19 casualties is a good day for risk over the short term.
Oil is rebounding on stabilizing coronavirus case metrics that are suggesting people will return to work quicker than expected. In the absence of any positive news flows from OPEC, gains could be capped.
Still, there’s a good chunk of oil traders thinking a deal will happen and are in buying the dip today. It makes sense for an oil producer to front-load the short-term pain for some medium-term gains and, at a minimum, it will provide a line of defense from oil prices falling into single digits.
But today the market is reveling in the COVID-19 curve-flattening scenario.
Late on Friday the Reserve Bank of India announced shorter trading hours for onshore markets. All onshore fixed income operations, including FX, would now be open only for 4 hours (10 am to 2 pm IST). This is effective from April 7-17, both inclusive. It's a coastal holiday today.
The People's Bank of China in a statement said that after implementing the targeted RRR cut, announced last Friday, the RRR for the qualified small and medium-sized banks will be 6%. This is a historical low and also very low among its EM peers. But this could be a sign of the central bank's reluctance to cut RRR further.
Japan PM Abe has decided to declare a national state of emergency, according to the local press. Tokyo and Osaka are likely to be affected. The declaration would not impose the kind of lockdowns seen in other countries, but it would give local governors powers to issue guidance to limit social distancing. Again, the supposed trade-off between economic lockdowns and coronavirus casualties is being viewed in a positive light today.
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