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Stocks climb as markets hope for a return to normal

17 April 2020

Asian stock markets are a sea of green, while US equity futures are also pointing to more gains for Wall Street to close the week. Risk appetite is being lifted by the rising hope that global economies can be restarted in the not-so-distant future.  Investors have also been encouraged by a report suggesting a potential coronavirus treatment from US drug company Gilead had shown positive results in a clinical trial. Gold is down by 1.4 percent and trading below the $1700 psychological level, 10-year US Treasury yields have risen by over five percent, while USDJPY has strengthened by about 0.2 percent to trade around 107.7.

Despite yesterday’s dismal data dump, including more record US jobless claims, investors are pinning their hopes on plans to ease lockdown measures. US President Donald Trump has set out guidelines that allow social distancing rules to be lifted in as soon as four weeks, smaller shops in Germany are set to reopen, while China has already embarked on its road to recovery over the last few weeks. Set against such optimistic anticipations, investors are paying less attention to the economic carnage left in Covid-19’s wake, including headline-grabbing prints such as China’s Q1 GDP shrinking by 6.8 percent to post its first contraction since at least 1992 and US jobless claims rising to 22 million in the four-week period ending April 11, which effectively wipes out all US jobs added since mid-2009.

Gains in risky assets may be ignoring underlying concerns over global economy

The prudent investor would however be mindful that the road to global economic recovery remains tentative at this point in time. Such concerns are laid bare in the Dollar/Asia complex, with most Asian currencies posting a loss against the Greenback for the week.

A global recession remains the base case for the year and the economic outlook remains clouded with uncertainties. While policymakers are eager to limit the economic damage, the reopening of their respective countries could be upended by a swift resurgence of the coronavirus. The broad rollout of a Covid-19 vaccine is still the necessary catalyst for a return to life as it once was and would be the spark required for a sustained rally in risk assets.

Brent, WTI futures put in contrasting shifts

Brent futures are gaining two percent to push back towards $30, while WTI futures are lower by 1.3 percent and have sunk back below the psychologically-important $20 mark. Brent’s buoyancy is being invigorated by the joint statement by Saudi Arabia and Russia to take “further measures” to support Oil prices. However, the US benchmark is being dragged lower amid a record collapse in fuel demand stateside, which threatens to send US inventories to a new record high in a matter of weeks. Such prospects are reportedly prompting the US administration to consider paying producers to keep crude in the ground.

Oil markets overall are still expected to struggle on this slippery slope as demand-side risks remain tilted to the downside. However, if more of the global economy enacts plans to reopen and restores some sense of normality, that could help Oil prices find a firmer floor in May, aided by the OPEC+ supply cuts kicking in then as well.



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