Markets Continue to Slip

What's New

. Asian markets followed suit on Wall Street's losses on Friday, and oil prices dropped, as fears of a second wave of infections in China pushed investors to safer assets. At the same time, data from China were disappointing further affecting sentiment.

. MSCI Asia-Pacific (ex. Japan) was down 0.3%, with the ASX dropping 0.1% and Korea's Kospi being down 0.3%. The Nikkei was the mostly hurt, at -0.7%.

. Fears of a second wave have taken over the markets, however, time will tell if this is something that will be of a permanent nature. At this point, investors appear to view this as a reality check that the world has not resolved the Covid-19 issue yet, as analysts note. This is primarily a discounting effect, with markets trying to quantify what could happen in the near future.

. The fears were not unsubstantiated: Beijing recorded dozens of new Covid-19 cases in recent days, all linked to a major wholesale food market. To prevent any spreading, authorities have closed the centre and locked down nearly areas. At the same time, cases in the US jumped to more than 25,000 just on Saturday.

. Data releases were more sour than expected as well. In China, industrial production rose by less than expected, while retail sales dropped by 2.8%, much more than expected, in a signal that demand in the country is still suffering. The year-to-date figure for retail sales was at -14%.

. On the other hand, there are still those who are more optimistic and hope that any second wave would be more manageable than the previous, given the policy experience. This was also supported from better than expected consumer sentiment in the US, with the Michigan survey coming out less than 100 but still improved compared to May.

. As expected, the rise in sentiment pushed the Aussie and the Kiwi down, with the Yen gaining on the dollar. The Yuan was also down after the cases were discovered.

. Still in the currency market, the pound fell as a result of concerns related to the trade negotiations between the UK and the EU. Some investors believe that the UK economy could be seriously hurt if new terms are not agreed. The Euro, on the other hand, remained stable against the dollar.

. In the oil markets, Brent dropped by 2.25% and WTI dropped by 3% on fears about fuel demand rising along with the potential for a second wave of infections. Oil rigs continue to decline on the other hand, standing at their lowest-ever level.

. Gold rose by 0.2% as safe haven demand rose.

. In a clear illustration of the perils of the coronavirus, tourist arrivals dropped by 99.4% in New Zealand, while imports and exports in Korea continued to decline by more than 20% y/y.

Up and Coming

. The Empire State manufacturing index is expected to come out improved compared to the previous month, but still negative at -27.50.

. In Canada manufacturing sales are forecast to have dropped by 18.7% compared to a decline by 9.2% in March.

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