MORNING BID-Share rally gets a reality check
LONDON, April 15 (Reuters) – A look at the day ahead from EMEA deputy markets editor Sujata Rao.
The views expressed are her own.
Wall Street closed higher last night, driven by hopes of some lockdown restrictions being lifted, a fall in New York’s total hospitalizations and better earnings from consumer giant Johnson & Johnson.
But the rally that took the S&P500 to five-week highs has had some cold water thrown over it in the shape of dire economic forecasts and further realisation of how damaging the coronavirus crisis is for company earnings.
The IMF predicts the global economy will shrink 3% in 2020 for the steepest downturn since the Great Depression of the 1930s. The fund also warned of “extreme uncertainty” around forecasts of a 5.8% rebound next year.
In all, it calculates the loss to the world economy over two years at $9 trillion, more than the combined gross domestic product of Germany and Japan. We also heard forecasts that the UK economy would experience its biggest contraction in 300 years.
Then the IMF warned of “cracks” in the financial system, with banks bearing the brunt.
We already knew that, but Q1 profits plunge reported by JPMorgan and Wells Fargo still shocked as banks set aside billions of dollars against potential loan losses. They also face a prolonged period of rock bottom interest rates.
We hear from Bank of America, Goldman Sachs and Citi today. On the data front, U.S. March retail sales and industrial production should all show sharp declines.
World stocks are flat today, having raced up 13% this month while US futures are down 0.5%. A pan-European equity index is 0.7% lower, while Chinese and Asian shares failed to benefit from China cutting medium-term interest rates to record lows.
The rate cut, alongside a firmer dollar, weighed on the yuan. The souring mood has lifted the dollar index. Gold is down 0.7% after its run-up to more than 7-year highs, but a spike to $1,800 an ounce looks inevitable. The Canadian dollar is down half a percent ahead of an expected central bank interest rate cut later in the day.
Bond yields are down too: 10-year U.S. and German borrowing costs have slid 2-3 basis points. Italian yields are up, however, with its bond markets unhappy about the euro zone’s failure to agree coronabonds. It has now announced plans for larger debt auctions and also possibly more costly syndicated placements to finance the coronavirus response.
Europe’s corporate world is not looking pretty either. Adidas shares are down 2.3%, despite approval for a 3 billion-euro government-backed loan to mitigate the coronavirus impact. Arkema shares are up 1% after the Sawiris boosted a stake in the French chemical maker to more than 5%.
Other headlines: Ferguson cancels dividend, plans vote to move to U.S. listing; Smurfit Kappa reports inline numbers, cuts dividend and capex; Balfour Beatty’s JV with Vinci grabs HS2 contract. ASML reported results below analysts’ estimates
We need to keep a watch on emerging markets. The coronavirus comes at a great cost here, with the IMF predicting sub-Saharan Africa’s GDP to contract 1.6% this year. At least creditors have agreed debt relief for such countries. The IMF says 100 countries have sought emergency pandemic aid.
Headlines make grim reading: expectations of a Q1 GDP decline in China for the first time on record, Saudi Aramco seeking $10 billion in bank loans; South Africa and Turkey resisting any suggestion of IMF support and stricken Lebanon’s pound has hit 3000 to the dollar for the first time.
Turkey’s lira extends losses for a fourth day to hit 20-month lows, grinding towards the 7 to the dollar level seen during the 2018 August rout. It has shrugged off efforts by authorities to throttle the offshore lira market. +++ MARKET DATA DIARY ++++ Korean revised exports March Japan Tankan index Russian industrial output March German 30-yr bond auction Swedish CPI March Atlanta Fed’s Bostic speaks G20- finmins and cbank governors speak by teleconference on COVID-19 plan of action Namibia cbank US New York Fed manufacturing survey US retail sales/industrial production/retail inventories March US Feb Tic data Feb
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