Asia Headed for Best Week since 2011

What's New

. Stocks in Asia appear to be going for their biggest weekly rise since 2011, while the Euro jumped to a 1.5-month high after the ECB announced a bigger than expected stimulus package.

. MSCI Asia-Pacific (ex. Japan) was up 0.1%, reversing early losses and remaining at a 12-wek high, already up 6.5% this week. The performance was driving by South Korea's KOSPI which was up 0.7%, while Chinese stocks were still losing ground at -0.3%. The Nikkei was up 0.1%, while S&P Eminis were up 0.7%.

. The upwards movement during the week was the cause for profit taking in emerging equity markets. On the other hand, in developed economies, market valuations are at their highest point since the dot com bubble in 2000, suggesting that the market's performance is driven more by the policy packages and investor sentiment than the companies' performance. Some technical indicators even suggest that the market is at "overbought" levels and warn about an impending correction.

. The problem with central bank and fiscal stimulus packages is that, although perfectly justified to cushion the virus' blow on the economy, they distort pricing and cause traditional signals from bond markets, regarding growth and inflation, to show potentially misleading information. A potential way to avoid this would be to "co-invest" along central banks, as analysts suggest.

. Currency markets are quick to adapt to these changes and show that they expect a revival of the global economy. The euro was at 1.1337 after the ECB announced a 600 billion euro expansion of its asset purchase programme instead of the expected 500 billion expansion. The Euro is up 2% this week, on track for its third consecutive weekly gain.

. The question is whether the Fed will follow suit, with the its two-meeting to take place next week. Still, the Dollar was up 1.2% thus far this week against the Yen, a sign that risk is coming back to the markets. This is also supported by the Aussie's performance which is near a five-month peak. The increase in risk appetite is the driver behind the Dollar's third week of losses against a basket of currencies.

. Supported by the increase in risk appetite, US crude oil remained at its highs, while Gold moved downwards to $1709 per ounce.

. Earlier today, UK consumer confidence for June came out at a decade low, while Japan's household spending was negative but better than expected in April. On the other hand, Singapore's retail sales plunged 40% y/y in April. So did German factory orders which showed that Europe's largest economy saw a near 26% m/m drop in orders.


Up and Coming

. Big US day today, with NFPs expected to register the biggest unemployment rate since WWII, as payrolls are expected to have dropped by another 7.5 million.

. A similar situation is expected for Canada, with forecasts suggesting an addition 500k drop in employment in May. The Ivey PMI is also seen to have remained at low levels, even though better than last month.

. For oil traders, oil rig count is due today, with market participants wondering whether the all-time lows will persist.



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