Tentative slowing signs of coronavirus Department...11.08% 12.68% 15.45% 4.00% 9.32% 4.04% 8.78%...

14

Transcript of Tentative slowing signs of coronavirus Department...11.08% 12.68% 15.45% 4.00% 9.32% 4.04% 8.78%...

Page 1: Tentative slowing signs of coronavirus Department...11.08% 12.68% 15.45% 4.00% 9.32% 4.04% 8.78% 6.75% 9.00% 10.90% 10.25% 3.99% 14.42% 16.09% 3.91% 15.61% 4.21% 8.90% 13.23% 5.76%
Page 2: Tentative slowing signs of coronavirus Department...11.08% 12.68% 15.45% 4.00% 9.32% 4.04% 8.78% 6.75% 9.00% 10.90% 10.25% 3.99% 14.42% 16.09% 3.91% 15.61% 4.21% 8.90% 13.23% 5.76%

Tentative slowing signs of coronavirus

spread worldwide helped the equity

markets to rebound in April. However,

incoming economic data have been

consistently disappointing, reported

corporate earnings didn’t give much positive

surprise, and that market breadths are

narrowing.

Thus, we believe the recent market pickup

may only be short-lived and the overall

direction is still tilted towards the

downside.

As economic activities gradually resume, we

foresee that the post-COVID world will need

at least a few months’ time to regain the

lost capacity particularly in the

manufacturing sector.

Page 3: Tentative slowing signs of coronavirus Department...11.08% 12.68% 15.45% 4.00% 9.32% 4.04% 8.78% 6.75% 9.00% 10.90% 10.25% 3.99% 14.42% 16.09% 3.91% 15.61% 4.21% 8.90% 13.23% 5.76%

Furthermore, the unprecedented heavy

slump in oil price proved that global demand

is very weak, but on the bright side, cheap

oil can help to keep production cost low.

Also need to bear in mind, whether the

re-escalating tension between U.S. and

China will start another round of trade war

will be another decisive factor for the

rebound of the global economy.

As people always say, opportunities come

from chaos.

We are undoubtedly under a very uncertain

environment. We need to monitor the

market closely and manage the portfolio in

a very active way in order to capture the

opportunities, or protect against significant

market downturn.

Page 4: Tentative slowing signs of coronavirus Department...11.08% 12.68% 15.45% 4.00% 9.32% 4.04% 8.78% 6.75% 9.00% 10.90% 10.25% 3.99% 14.42% 16.09% 3.91% 15.61% 4.21% 8.90% 13.23% 5.76%

GLOBAL STOCKS

COMMODITIES & CURRENCIES

10.80%

11.08%

12.68%

15.45%

4.00%

9.32%

4.04%

8.78%

6.75%

9.00%

10.90%

10.25%

3.99%

14.42%

16.09%

3.91%

15.61%

4.21%

8.90%

13.23%

5.76%

4.41%

10.99%

MSCI World

Dow Jones

S&P

Nasdaq

France

Germany

UK

Australia

Japan

MSCI EM

Russia

Brazil

China

India

Vietnam

Indonesia

Thailand

Malaysia

MSCI Asia ex Japan

Taiwan

Singapore

Hong Kong

South Korea

6.93%

-8.01%

7.47%

4.48%

-6.80%

Gold Crude Oil Platinum Copper Wheat

-0.03%-0.69%

0.32%

1.40%

6.21%

0.87%0.41%

1.78%

-5.10%

-0.05%

0.27%

USD EUR JPY GBP AUD CAD KRW TWD BRL INR CNY

Page 5: Tentative slowing signs of coronavirus Department...11.08% 12.68% 15.45% 4.00% 9.32% 4.04% 8.78% 6.75% 9.00% 10.90% 10.25% 3.99% 14.42% 16.09% 3.91% 15.61% 4.21% 8.90% 13.23% 5.76%

As the global coronavirus spread looks

improving, countries are taking steps toward

reopening the economy partially and gradually.

Yet, infection numbers are slowing but the

slowing rate is deteriorating. Therefore, to

avoid triggering massive outbreak when they

loosen social distancing measures, governments

are very cautious about their plans.

For instance, U.K. locked down from mid-March

which forced businesses to close and consumers

to stay at home. Now it’d ease limits to length

of time allowed for certain outdoor activities as

well as allowing citizens to drive to parks and

beaches.

Prime Minister Johnson targets to reopen

primary schools as early as the first of June and

the hospitality industry by 1st July. At the same

time, he encourages to commute on foot, or to

drive or cycle.

In the U.S., many states already outlined

phased plans. For example, Virginia is set to

allow some businesses to open except areas just

Page 6: Tentative slowing signs of coronavirus Department...11.08% 12.68% 15.45% 4.00% 9.32% 4.04% 8.78% 6.75% 9.00% 10.90% 10.25% 3.99% 14.42% 16.09% 3.91% 15.61% 4.21% 8.90% 13.23% 5.76%

outside Washington. President Trump also

confidently spoke a lot on how the country can

control the virus and urge all to reopen soon.

On the other hand, Trump also needs someone

to blame for American deaths (accumulating up

to 85,883 as of 15/5/2020 09:33 GMT+8) by the

virus, especially when he is running for the

re-election campaign later this year.

That’s why he repeatedly addressed China as

the infectious source. Here, we expect trade

tensions to be heated.

Apart from trade, virus control effectiveness

also sounds a note of caution lately as new

confirmed cases of Covid-19 (all asymptomatic

infections) were reported the first time in

Wuhan in more than a month while the

authorities are restarting business and work.

Meanwhile in Russia, since 3rd May, the country

recorded >10,000 confirmed cases every day for

11 days straight! Note that the country had

been quite “safe” from the virus before April.

Given that it had all looked calm in Russia a few

weeks before. What makes us worry is that any

“safe” places now might would become

“another Russia”.

Meanwhile, the sever surplus of crude oil and

China marked its first ever shrinkage at -6.8% in

Q1’2020 since record began in 1992.

The above both speak the fact that global

economic recession is set to last for at least the

first half of this year.

Gasoline demand once collapsed to barely 5m

barrels per day in the week ending 3rd April

(compared to an average of 9m since 1990).

Such chronic surplus smacked the market hard

in late April. Before the month, who would have

thought that oil price can actually “hit the

ground”, even fell into negative zone?

Despite having climbed back to $20 (WTI price)

by the end of April, it’s still too low to make a

profit. For reference, production costs range

$10~20 in Saudi Arabia, around $30 in Russia,

and $40~$50 for U.S. shale oil.

Above all, the market is set to be highly volatile

and again, tilted to the downside considering

the weak economic outlook ahead.

Multiple economic data are worth watching to

ascertain what’s going to come, e.g. durable

goods orders (a lagging indicator of typical

economic cycle), jobless claims, etc.

Page 7: Tentative slowing signs of coronavirus Department...11.08% 12.68% 15.45% 4.00% 9.32% 4.04% 8.78% 6.75% 9.00% 10.90% 10.25% 3.99% 14.42% 16.09% 3.91% 15.61% 4.21% 8.90% 13.23% 5.76%

Consumer price inflation rates YoY %

Consumer inflation added 0.3% while the core rate rose 1.4%, both significantly

lower than March as prices for apparel, motor vehicle insurance, airline fares,

and lodging all fell sharply. Yet, food inflation jumped to 3.5% from 1.9%.

IHS Markit U.S. Manufacturing PMI index

The index was revised lower to 36.1 in April, compared to March’s final at 48.5,

the lowest since early 2009 as output, new orders, and exports all fell at record

rates due to virus control measures.

Permanent job losses SA; Continuing jobless claims (week ended 15/3 ~ 25/4)

Two million U.S. job losses in April were permanent, most were temporary layoffs.

Jobless claims hit a record high of 22.647 million in the week ended 25th April

(recent prior weeks: 1.8m → 3.1m → 7.4m → 11.9m → 15.8m → 18.0m).

Page 8: Tentative slowing signs of coronavirus Department...11.08% 12.68% 15.45% 4.00% 9.32% 4.04% 8.78% 6.75% 9.00% 10.90% 10.25% 3.99% 14.42% 16.09% 3.91% 15.61% 4.21% 8.90% 13.23% 5.76%

April was a month of recovery but as May began, the market is already losing

momentum as we had expected. Year-to-writing-day: S&P 500 and Dows are

still losing 11% and 17% while NASDAQ already takes 0.3% gain, market cap is

now >55% of S&P 500.

The outperformance of tech stocks with narrow market breadths (all three

index 200-day breadths lie around 25 to 30) point to the fact that the market

upside is just contributed by a very small portion of market participants. Mainly,

a few tech giants of which the balance sheets are fully-loaded such as “FANG”

are the major contributors.

This means, the market is indeed fundamentally weak. Also, Dows is making a

suspicious head-shoulder peak terrain. Look at the graph below, the two-month

trend of Dows price index marked a “peaking” signal, which is worth watching.

We expect high level of volatilities as speculations mount and believe that the

overall direction is tilted to downside.

Page 9: Tentative slowing signs of coronavirus Department...11.08% 12.68% 15.45% 4.00% 9.32% 4.04% 8.78% 6.75% 9.00% 10.90% 10.25% 3.99% 14.42% 16.09% 3.91% 15.61% 4.21% 8.90% 13.23% 5.76%

IHS Markit Manufacturing PMI index for Euro area

In the Euro area aggregate, the index for April was revised lower to 33.4, from

March’s final 44.5. This makes the steepest contraction since the comparable

series began in June 1997.

European Commission economic sentiment indicator

The index plunged from 94.2 in March to 67 in April, the lowest level since

March 2009, most sharply among services provider (-2.3→-35.0), retailers

(-8.6→-28.3), manufacturers (-11.2→-30.4), constructors and consumers.

European Commission expectations; GDP Growth rate YoY %

EC expects the area’s GDP to shrink 7.7% this year and rebound 6.3% in 2021.

Q1’20 GDP fell 3.3% for Eurozone and 1.6% for Britain, both the steepest

contraction in the decade.

Page 10: Tentative slowing signs of coronavirus Department...11.08% 12.68% 15.45% 4.00% 9.32% 4.04% 8.78% 6.75% 9.00% 10.90% 10.25% 3.99% 14.42% 16.09% 3.91% 15.61% 4.21% 8.90% 13.23% 5.76%

Having seen the chronic spread of coronavirus disease in Russia, we are far

from confident to say anything about whether European countries are

becoming more “safe” despite its gradual recovery.

Yes, the number of new COVID19-confirmed cases reported each day has been

lowering. Regrettably, the growing rate neither speed up nor slow down.

To be honest, we are hardly confident whether the economy can recover under

such uncertainties. Also, we still need to bear in mind the worst-case scenario

possible: what if governments start to reopen the economy, people starting to

let their guards down then a new wave of virus outbreak hit the region again?

European markets in April in a nutshell, MSCI Europe ex U.K. grew by 5.63%

which shows much softer growth when compared with MSCI World 10.80%.

One reason for the lagging performance is that European stocks are not cheap

at all, currently trading at historical high valuation levels. Look at the graph

above, we expect the soft upside to continue.

Page 11: Tentative slowing signs of coronavirus Department...11.08% 12.68% 15.45% 4.00% 9.32% 4.04% 8.78% 6.75% 9.00% 10.90% 10.25% 3.99% 14.42% 16.09% 3.91% 15.61% 4.21% 8.90% 13.23% 5.76%

Year-on-year inflation (consumer prices, food prices, producer prices

Annual consumer inflation rate fell to 3.3% in April whereas food inflation

stood at 14.8%, both marked the lowest since last September. Producer

inflation fell three months straight to -3.1% in April.

Caixin General Manufacturing PMI index

PMI stood at 49.4 which lagged the market consensus of 50.3 as domestic and

international demand continued to be soft. New orders fell three months

straight with new export orders declining the most since December 2008.

Export Amount on Daily Average YoY %

Daily exports fell 30% in the first ten days of May, with shipments to the U.S.

and E.U. falling more than those to China.

Page 12: Tentative slowing signs of coronavirus Department...11.08% 12.68% 15.45% 4.00% 9.32% 4.04% 8.78% 6.75% 9.00% 10.90% 10.25% 3.99% 14.42% 16.09% 3.91% 15.61% 4.21% 8.90% 13.23% 5.76%

April was a month of rebounds where MSCI Emerging Markets and Asia ex Japan

index rose 9.0% and 8.9% respectively. During the month, among the BRIC

countries, India rebounded the most by 14.4% while Russia and Brazil stock

markets both recovered around 10%, helping to narrow down their severe

year-to-date returns to -27% and -31%, from their previous heavy declines.

For now, Shanghai Composite index stumbles as it approaches key resistance

levels where both the 100-day and 200-day moving averages converge.

In China, the PBoC, has reduced multiple policy rates in the past four months,

recently vowed to deploy “more powerful” policies. Key government meetings

that start soon may approve even more debt sales and some other stimulus

policies.

In releasing liquidity, the central bank scheduled reduction of the required

reserve ratio effective 15th May, this will add a mild 200 billion yuan in liquidity.

In Japan, the stock market added 6.8% while MSCI Asia ex Japan index gained

8.9%.

Yen moved little. In its meeting on ending 27th April, the Bank of Japan kept its

short-term interest rate target unchanged at -0.1% but unleashed the biggest

ever expansionary pack. It pledged to buy an unlimited amount of bonds to

keep borrowing costs low (initially limited to JPY 80 trillion annually). In terms

of forecast, the Bank estimated a shrinkage of 3% to 5% in the really economy of

fiscal year 2020/21, way worse than its January’s estimate at 0.9% of growth.

Page 13: Tentative slowing signs of coronavirus Department...11.08% 12.68% 15.45% 4.00% 9.32% 4.04% 8.78% 6.75% 9.00% 10.90% 10.25% 3.99% 14.42% 16.09% 3.91% 15.61% 4.21% 8.90% 13.23% 5.76%

As factories shut down, global trade suffered intensely, such trauma is likely

to shift global supply chain to be in search of more diverse and secure sourcing

of inputs despite China’s price competitiveness. Also, the post-COVID world

tends to be more cautious treating foreign nations, we expect to see

protectionism in terms of trade and diplomatic intensify.

Even for China, the infectious source of COVID-19, has taken protective moves.

Whether or not it’s for disease-control, the ultimate result still tightens trade rules.

Lately, the country suspended meat imports from 4 Australian abattoirs, fueling

concerns to damage Australia’s most important trading relationship (2018: 37% of

its total trade was with China; trade balance: AUD 58B (China) 67B (All countries)).

Further to South Korea exports figures mentioned above. As the global trade

barometer, the country’s top trade official Sung Yun-mo added that, “it’s just the

beginning … will hammer Korean exports more than the financial crisis did”

Sung warns that the impact could come deeper and longer-lasting and that the

trade pain could shift the supply chain. EM/ Asian nations that “succeeded” in

controlling the virus spread can renew investors’ confidence and gain an attractive

point. Korea could be in favor due to its higher security in exports which shall help

improve its harm from Japan trade disputes. With exports decline and expected

growing protectionism, trade sector will have more difficulty to recover.

Page 14: Tentative slowing signs of coronavirus Department...11.08% 12.68% 15.45% 4.00% 9.32% 4.04% 8.78% 6.75% 9.00% 10.90% 10.25% 3.99% 14.42% 16.09% 3.91% 15.61% 4.21% 8.90% 13.23% 5.76%