A look at the day ahead from EMEA senior markets correspondent Tommy Wilkes. The views expressed are his own.
It’s the end of the most calamitous quarter for world stocks since 2008. For European stocks you have to go back even further – to 2002. With world markets having seen $10 trillion wiped off their value in March and policymakers responding with more than $10 trillion-plus of stimulus packages, a semblance of calm has returned. In fact, talk is of another U.S. stimulus package being thrashed out.
Much better-than-expected factory data out of China held out hope of some sort of post-lockdown economic revival, even as the rest of the world closes shop. Some analysts, such as Morgan Stanley, have been bold enough to call the bottom in stocks and say the lows of early last week are unlikely to be revisited, with now looking like a great buying opportunity.
Whether that proves right or not will depend in large part on when investors see a peak in infection rates. Signs are mixed. The number of new infections in Italy is declining. But worldwide, infections exceed 770,000, with the epicentre shifting to the United States where infections and deaths are rising rapidly. Even in the Asia-Pacific region, a World Health Organization official on Tuesday warned the epidemic was “far from over”.
Stocks were headed modestly higher on Tuesday after a positive Monday, with Wall Street rallying into the close. The S&P 500 is now within a whisker of a 20% rise from its lows of just 5 days ago. Strictly speaking, that would mark a new bull market, but probably best not to read too much into that bounce, given the index remains 22% below late-February highs.
Asian shares managed a small rally after the strong Chinese PMI figures, with MSCI’s Asia-Pacific share index excluding Japan up more than 1%. It is still down 21% for the quarter though. S&P 500 futures gained 0.4% while a pan-European equity index has opened 1% higher. Emerging stocks and currencies are up for the first time in three sessions, though equities are looking at their worst month since 2008.
Clearly, much bad news has been priced in. The VIX, dubbed Wall Street’s “fear” index, is still very elevated at 57 but down from levels above 80 earlier in the month.
Another reassuring sign is that oil prices are recovering from Monday’s slide to 18-year lows, after the United States and Russia agreed to talks to stabilise energy prices which fell at one point below $20 a barrel. But on the quarter, Brent crude futures are down a whopping 65%, their worst quarter ever.
On currency markets, the dollar is climbing again, but it’s a more contained rise than the jumps earlier this month which put severe stress on currency funding markets. Measured against a basket of currencies, the greenback has risen 1% this week but remains well off recent highs. Still the jury is out on whether the dollar is done flexing its muscles.
The euro, sterling and yen all fell as the greenback rose. There was little respite for battered emerging market currencies either, with the South African rand close to the record lows of Monday after its credit rating was downgraded to junk.
Government bond markets have also calmed, and encouragingly, Italian yields were mostly stable before a key auction as the country’s battle against the coronavirus seems to make progress. Yields in other markets such as Germany were modestly higher.
In the corporate world, Tuesday brought another batch of coronavirus headlines and dividend cuts, with the latest to slash their shareholder payouts French luxury group Hermes and Ad giant WPP. There were warnings from the likes of chocolatier Lindt & Spruengli which scrapped its 2020 targets, while Shell said it would write down $800 million in Q1 due to the oil slump. On airlines, Norway’s regulator gave the nod to credit bailout for the sector.
If anyone had any doubts, there was further confirmation of the hit M&A activity is taking from news that Altice Europe was dropping its bid interest in Israel’s Partner Communications.
In emerging markets, MSCI main equity index is up 1.5% but that’s little compensation for the 16.4% monthly fall and 25% loss on the quarter.
Mexico’s peso is set for its worst month since December 1994, the year of the “tequila crisis”, forcing authorities to activate a currency swap mechanism established with the U.S. Federal Reserve.
In some positive news, Ukrainian lawmakers voted to lift a ban on sales of farmland, clearing a hurdle to unlock an $8 billion International Monetary Fund loan package. (Editing by Andrew Cawthorne)