Risk appetite was evident to start the new week as the prospect of major western nations taking the first tentative steps to reopen their economies bolstered sentiment. The Bank of Japan’s decision to remove the cap on JGB purchases and expand its support for corporate paper added to the good vibes.
Equities advanced in Europe and Asia and US stocks are gunning to extend the bounce off March’s bear market lows. Coronavirus deaths slowed over the weekend in Italy, Spain and France, and Andrew Cuomo nodded to a cautious, phased reopening of New York starting as soon as May 15.
It wasn’t all good news, though. WTI futures plunged 16%, sinking back below $15 barrel as supply concerns continue to hang over the market and producers move to cut production in a futile effort to offset the largest demand shock in history.
South Korea ran out of commercial storage space on Monday, as sources told Bloomberg nearly the entirety of Korea National Oil Corp and Oilhub Korea Yeosu Co’s onshore capacity is rented.
Goldman says the world will bump against aggregate storage capacity limits within a month. Ultimately, with the demand shortfall set to be some 18 million barrels per day midway through next month, drillers will need to take at least that much supply offline to balance the market.
Read more: Blown-Up Risk Models And Decimated US Drilling: Insane Week In Oil Leaves Trail Of Destruction
It’s also worth noting on Monday that Chinese industrial companies’ profits plunged 34.9% in March, representing but a marginal (get it?) improvement from January-February.
I called the combined figure for the first two months of 2020 “laughable“, but I expected a material rebound last month. No such luck.
An NBS official lamented lackluster demand, elevated product inventories and the persistence of PPI deflation.
That latter point is important. Factory gate prices in China first slid into deflation last summer, a state of affairs which persisted, and served as a headwind for profits. Prices fell -1.5% in March underscoring the need for more policy support, even as inflation remains elevated.
PPI deflation was extremely vexing for China’s industrial enterprises late last year, as they contended with subdued demand on the home front exhibited in falling retail sales, contracting imports, diminished appetite for credit and the worst auto slump on record. Clearly, all of that has been made immeasurably worse by the virus.
The above comes ahead of a week when markets will confront the first read on Q1 GDP for the US and Europe, and as the Fed and the ECB deliver what are expected to amount to status reports.
“The S&P decision not to downgrade Italy on Friday and a risk-positive mood this morning have taken EUR/JPY back above 116 and EUR/USD above 1.08, but Q1 Eurozone GDP data risk being a lot worse than the US if only because of when lockdowns happened in Italy, France and Spain”, SocGen’s Kit Juckes said Monday.
Oh, and finally, Turkish shares are headed for a bull market.
Even as the currency flirts with a record low.
Devalued currency is likely the reason for bullish stocks. The shares won’t be worthless, even if the currency is. Think Venezuela with less hyper inflation. Thx H
When an investor wakes up in the morning and her first thought is “Turkish equities” something is amiss.