Friday, 22 January 2021

CIMB Private Banking releases weekly market outlook

CIMB Private Banking’s economist Song Seng Wun shared about what happened in the markets in the first week of May 2020 and what the Asia Pacific region region can expect in the coming one.

While the Singapore Straits Times Index (STI) ended the week flat, technology stocks lifted the United States (US) equities, sending the NASDAQ into positive territory for the year. Market participants were in ‘risk-on’ mood last week, undeterred even as the second quarter of global macro outlook darkened.

It seems it is a case of the worse the incoming macro data (gross domestic product (GDP), trade, industrial output, retail sales, job reports, orders, Purchasing Managers' Index (PMI), etc.) the stronger the ‘V-shaped’ rebound will be. Market participants continued to pin hopes on a ‘flattening curve’, crippled economies ‘re-opening’ as lockdowns are lifted, US-China trade talks on track and bets on more stimulus measures, as the PMI surveys for April showed the global manufacturing and service-producing industries slumping at an unprecedented pace.

On the other hand, the US bond markets is sending a more bearish signal as yields on 2Y and 5Y US Treasuries fell to their lowest levels ever at 0.15% and 0.32%, respectively. In the futures market, traders are pricing in the possibility of negative rates, undeterred, by the US central bank’s view that the benefits of negative rates are temporary and soon to be swamped by the harm to the US financial services sector from banks earning less returns on their assets while interest they pay on deposits generally stay above zero, to pension and insurance companies offering nominal returns and minimum income guarantees in the future.

Last week, the Federal Reserve Bank of Richmond’s president Thomas Barkin said in a CNBC interview, “I think negative interest rates have been tried in other places and I haven't seen anything personally that makes me think they are worth a try here”.

VIX, the fear index eased again to the lowest (28) since end of February (83 in mid-March). Brent crude rose to $30.85 per barrel amid hopes for a recovery in demand. It was $16 just three weeks ago. After another rollercoaster week, Gold ended Friday at $1,703 per ounce and the US dollar index was at 99.8 after the terrible April US jobs report was ‘less bad’ than forecasted. The US economy ‘only’ lost a record of 20.5 million jobs while the jobless rate was ‘only’ a post-war high of 14.7% versus a forecast of 16%.

Two other notable developments happened last week. The first was that Germany's top court said the European Central Bank (ECB)'s bond purchases scheme partially violates the constitution and raised objections to the Deutsche Bundesbank's participation in it.

The German judges said that the Deutsche Bundesbank must stop buying government bonds under the scheme within the next three months unless the ECB can demonstrate those purchases are needed. The second news is that Argentina missed a Friday, 8 May deadline to close a deal to restructure $65 billion of foreign debt, fuelling fears that it will fall into default for the ninth time in its history.

This week will see some ‘circuit breaker’ measures eased in Singapore with effect from Tuesday, 12 May. As more governments around the world ease lockdown measures to save their economies, all eyes are on the new infection rates although social distancing and good personal hygiene should contain the second or third waves. New COVID-19 outbreaks in Germany, South Korea and China are reminders that this COVID-19 fight is far from over.

As the US corporate reporting season winds down, in Asia companies reporting include some of Japan's biggest companies, including the auto and brewing giants as well as the three big banks. Results will also come from Singapore Airlines, Tencent Holdings and China's chipmaker Semiconductor Manufacturing International Co.

On the macro front, there will be inflation, retail sales and industrial output data from the US, Eurozone and China. In Europe, the first quarter GDP data for the United Kingdom, Germany, Poland, the Czech Republic, Hungary and the Netherlands are published, and in Asia, apart from the monthly China data, there will be first quarter GDP data released for Japan, Malaysia and Hong Kong (HK) (final HK Q1 data. Prelim: -8.9% year on year). Australia will release its April jobs report on Thursday, 14 May and policy action meanwhile comes from the Reserve Bank of New Zealand on Wednesday, 13 May. Like the Aussies last week, the Kiwis are likely to keep its key policy rate at record low of 0.25%.

Re-disseminated by The Asian Banker

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