(ATF) Hong Kong: European stocks and US futures open higher on hopes that China will embark upon a stimulus campaign after US President Donald Trump issues a roadmap for reopening of the US economy.
The Stoxx Europe 600 is up 2.6% and S&P futures are 2.4% higher. 10-year US Treasuries yields rose a basis point to 0.63% after Trump announced the decision to reopen was up to the governors of individual states and backed off from a quick loosening of guidelines. “Under these guidelines, States will reopen one step at a time, rather than all at once. The guidelines will empower Governors to tailor the phased reopening to address the situation in their State.”
Risk appetite was also whetted by expectations that China could step up its stimulus campaign after the world’s second largest economy reported first-quarter GDP shrank by 6.8%, as a nationwide lockdown to battle the spread of the coronavirus crimped domestic demand, slammed production activity and halted movement of goods and its 1.4 billion citizens.
“In terms of policies, the Chinese government is on the track of a gradual escalation in its stimulus policies,” said JP Morgan Asset Management Global Market Strategist Chaoping Zhu.
Morgan Stanley analysts said it expected more policy support with the total policy stimulus size likely to reach $800 billion this year, with a 230 bps widening in the cyclically adjusted augmented fiscal deficit (US$400 bn) and $400 bn in quasi-fiscal credit measures.
“While the annual NPC meeting – which confirms the size of fiscal deficit expansion – could be at least a month away, Beijing could ramp-up infrastructure investment by raising the front-loading quota of local govt. special bond in the NPC Standing Committee meeting in the coming few weeks, and accelerate targeted credit supports for SMEs with PBoC re-lending,” Morgan Stanley said in a report. “We also expect another 20bps MLF rate cut and 50-75bps broad-based RRR cut (or equivalent) to facilitate fiscal easing this year.”
China’s domestic consumption, a major driver of economic growth in recent years, has weakened – reflected in the 15.8% decline in retail sales in March and this remains a concern among policymakers.
Data also revealed China’s fixed asset investments fell 16.1% and March retail sales fell 15.8%, all worse than expected. Industrial output was an outlier declining -1.1% versus an expected -6.2%.
Oil prices fell after the dismal numbers from China with Brent futures falling 1.2% and WTI sliding 8.2%. Earlier prices had rebounded after OPEC lowered its forecast for 2020 global oil demand. OPEC now sees a contraction of global demand of 6.9 million barrels per day (bpd), compared with a small increase predicted last month. “Downward risks remain significant, suggesting the possibility of further adjustments, especially in the second quarter,” OPEC said.
ATF China Bond 50 Index: The ATF CBM50 closed 0.05% higher and finished at 107.79 and is leading with the biggest gain at the end of trading on April 16.
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Credit markets also saw investors putting on risk with new issue pipeline starting to show signs of life.
Sovereign credit default swaps (CDS) tightened with
· The Asia IG index tighter by 7 bps to 112/115
· China’s 5-year CDS moved in 2bp at 40/42 bps
· Indonesia shrunk by 14 bps to 184/191
· Vietnam contracted by 10bps to 240/290 bps
China Travel Service has priced a 5-year, 10-year two-trancher at 40/50bps tighter than the initial price guidance and Lenovo has issued final price guidance for a 5-year deal which will price later today.
Foreign Exchange:
Asia Stocks
· Japan’s Nikkei 225 jumped 1.35%
· Australia’s S&P ASX 200 added 1.31%
· Hong Kong’s Hang Seng index advanced 1.56%
· China’s CSI300 climbed 0.98%
· The MSCI Asia Pacific index rose 1.64%.
Stock of the day
Casino stocks Wynn Macau and Sands China rose by 5-7% after data published showed gaming revenues in Macau fell by 60% in the first quarter, in line with market expectations and with China showing signs of reopening.
