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(A look at the day ahead from EMEA deputy markets editor Sujata
Rao. The views expressed are her own.)
Interactive graphic tracking the global spread, open https://tmsnrt.rs/3aIRuz7
in an external browser.
How quickly things change in markets. After the euphoria of
April, world stocks are on track for their biggest weekly loss
since mid-March, when the coronavirus-linked rout was in full
swing. The dollar has gained half a percent this week against a
basket of currencies, gold has risen 2% and Treasury yields are
down six basis points.
But on the last day of the week, the mood has swung around
again, with MSCI's global index up 0.3%. European markets are
enjoying rises of 1% to 2%. Travel and leisure are up 3% and
banks, which plumbed record lows yesterday, have bounced 1%.
Some of that impetus may be coming from oil, where prices
are set for their third weekly gain, helped by a rise in Chinese
refinery demand. Today's data showing China's industrial output
surprising to the upside could also support the thesis that
crude demand will rise as economies re-open. China-exposed
miners and chipmakers are also up.
U.S. crude-oil inventories have slipped for the first time
in 15 weeks and there is talk of more OPEC output cuts. That's
boosted European oil shares 1% to 2%.
The backdrop isn't pretty, though. Renewed U.S.-China
tensions risks strangling any nascent trade recovery. President
Donald Trump has declared in reference to China's Xi Jinping "I
don't want to speak to him", and suggested that cutting ties to
Beijing could save the United States $500 billion.
The effects of that rhetoric rippled across Asia today,
sending Japanese shares down for the fourth day in a row and the
yuan to one-week lows.
The other issue is economic data, and company earnings have
been worse than predicted. A Reuters poll of economists now
forecasts a 35% annualised second-quarter contraction for the
U.S. economy, from 30% previously. Yesterday, data showed almost
3 million Americans claimed unemployment benefits in the week
through May 9 -- essentially, one in five workers has lost his
job since mid-March.
In China, industrial production rose more than expected
(3.9% year-on-year), but there was bad news from retail sales,
which dropped 7.5%. Clearly, the loosening of lockdowns hasn't
persuaded Chinese consumers to go out and spend.
We get advance readings of euro zone gross domestic product
today, but attention is already focused on the second quarter,
where polls suggest an 11.3% contraction. Economists have also
slashed 2020 forecasts to minus 7.5%.
Then there is Brexit. The European Union and Britain wrap up
the latest round of negotiations on their future relationship,
but British Prime Minister Boris Johnson's spokesman has already
said the EU had "asked far more from the UK". Before Michel
Barnier's press conference, pressure has built on sterling while
sterling-dollar volatility has risen above 10% for the first
time since the end April.
Company news mostly consists of profit dives and dividend
cuts. U.S. first-quarter earnings are seen falling by 12.1% from
the year-ago quarter, versus the 6.3% growth expected on Jan. 1.
In Europe, there are some morsels of good news. Swiss
drugmaker Roche will start selling a new digital
diagnostics product to simplify and accelerate screening of
patients during the COVID-19 pandemic. Finnish utility Fortum
beat expectations and plans to stick to its dividend policy.
In M&A, the FT reported BT is in talks to sell a
multi-billion pound stake in broadband network operator
Openreach.
On the downside, Swiss luxury group Richemont expects
"headwinds in the months ahead"; it reported annual profit down
by two-thirds. Betting shop William Hill posted a 57% net
revenue plunge for the weeks since lockdowns were imposed in
Europe and North America. Eutelsat reported a 4.4% slump in
third-quarter revenues, hit by postponed sport events and
reduced travel.
Emerging-market stocks are seeing a second week of modest
declines, but the Turkish lira is set for its best week since
February. It's back below 7 per dollar after a Reuters exclusive
that Turkey has reached out to a various countries for swap
lines.
DIARY
Germany flash GDP Q1
Italy CPI
China industrial output, retail sales, urban investment April
US retail sales April, industrial output, business inventories,
University of Michigan
Europe corp events: Richemont, Fortum
(Editing by Larry King)
