Stocks Flat, Beijing in Containment

What's New

. Stock markets in Asia remained flat as fears about a resurgence of the virus and a re-imposition of some containment measures challenged market confidence, despite the jump in US retail sales yesterday.

. MSCI Asia-Pacific was flat, after a 2.8% rise on the previous day, with Chinese markets dropping 0.4%, while Japan's Nikkei was down 0.5%. S&P futures were down 0.20%.

. Record highs in new infections were recorded in six US states, while flights were cut and schools were closed in Beijing to contain a fresh outbreak. Analysts underline that a serious second wave of cases in major developed countries is the biggest risk faced by equity markets.

. Still, on the positive side, others argue that a second wave is expected to be relatively mild with regards to the pressure it can exert on the health care system and is unlikely to see a repeat of the March events.

. Geopolitics also played a role, as India reported that 20 of its soldiers had been killed in clashes with Chinese troops at a disputed border site, with North Korea vowed to send back troops to the border.

. Yesterday, retail sales jumped by 17.7% in May, but still recovering only half of the losses from the previous two months, while industrial output still lagged. At the same time, the Trump administration appears to have been preparing a $1 trillion infrastructure package, a campaign promise more than 3 years ago.

. As analysts note, there is little doubt that the global economy bottomed in April, with record-high growth rates expected in May and June. Other than that, the question about the extent of lasting damage will have to wait for number of months. A similar caution was worded by Jerome Powell who also commented that output and employment would remain below their pre-pandemic levels for a long time.

. In the currency markets, the Euro was at 1.1268, off its recent peak at 1.1422, while the Yen remained at 107.23. Gold was at $1725, within the $1670-$1760 bound which has persisted for a while.

. In the oil markets, Brent and WTI both fell after an increase in US crude inventories, despite a 3% increase on Tuesday when the IEA raised its oil demand forecast for 2020. As it appears, oil markets and traders believe that the excess supply issue still remains.

. The European Union is looking to flex its muscles with regards to competition, with the European Commission set to unveil a set of proposals to boost local industries in fighting back against companies that receive state aid from foreign governments. The proposals, set to impact Chinese companies most of all, come on top of the tariffs it imposed to curb China's "Belt and Road" plan, and just before new legislation on screening FDI on national security grounds comes into effect.

. The UK says it could boost its exports by more than a billion in the Australia and New Zealand trade deals, but still at a nascent stage as the first round is scheduled for the coming weeks.

. Japan's exports fell the most since 2009, as car shipments to the US plunged, leading to a 28% decline. As demand for cars continues to be weak, Japanese exports could be more hurt in the future. On the other hand, while exports continue to drop in Singapore, this is to a much lesser extent than other countries, issuing positive signals about the city-nation and Asia in general.

. Car registrations plummeted in May, dropping 89% y/y, despite a 368% (not a typo) m/m rise as April was near zero. Inflation was at 1.2% y/y in May, while factory prices fell by 10% y/y.

. All over Europe, car registrations were still way off on a y/y basis, but up on a m/m one.


Up and Coming

. Core and overall CPI is due for the EU today, with expectations suggesting that the y/y inflation rate would stand at just 0.1%, with the core expected to be at 0.9%.

. For oil traders, the OPEC report will be published today and questions on whether the countries have abided by their quotas will be answered. In addition, US crude oil inventories are also due to be published today, with forecasts suggesting no change.

. In the US, building permits are expected to have increased and so are housing starts.

. CPI data release for Canada as well, with the y/y overall CPI rate expected to come out at -0.1%.

. Some Fedspeak today, with Jerome Powell expected to testify before the Senate.