Wary, weary or just ambivalent – it was hard to say on Monday, as investors were greeted in the new week by foreboding headlines out of the White House, and an ongoing rise in coronavirus cases in Russia, where the infection total now exceeds that of Italy.
Russia now has 221,344 cases, after confirmed infections jumped nearly 6% in 24 hours. Putin is considering an extension of lockdown measures. His approval rating is at an all-time low, although that’s largely irrelevant, for obvious reasons.
Meanwhile, South Korea is grappling with a new outbreak stemming from nightclubs in Seoul. There are 86 cases so far, but in a testament to the difficulties in implementing effective contact tracing, more than half of nearly 6,000 clubgoers health officials want to track are unreachable. A flare up in South Korea – billed as a coronavirus “success” story for the country’s widespread testing effort credited with containing the initial wave – would be damaging for confidence.
China, meanwhile, reported credit data for April that was stronger than expected. That’s a welcome sign which suggests incremental policy easing from the PBoC is working its way through.
Total social financing rose 3.09 trillion yuan last month, against consensus of 2.78 trillion. The headline figure is off March’s blockbuster record, but looks like the strongest total for any April going back years.
New yuan loans were 1.7 trillion, considerably ahead of the 1.3 the market was looking for. M2 growth, meanwhile, surged 11.1%, the most in more than three years.
This comes after another round of easing from the PBoC in April, and suggests domestic demand, while impaired by the epidemic, will be supported by lending. Of course, that’s likely to raise concerns about Beijing’s commitment to the yearslong deleveraging push, but at this juncture, I’m not sure anyone is particularly concerned about that.
“We get the impression that corporates continued to issue bonds as an alternative to bank loans [but] the money raised seems to have been deposited in banks, which pushed up the M2 growth rate significantly”, ING said. “Most of this increase came from corporate savings, which makes us curious about whether some funds raised in the bond market, in anticipation of projects beginning, have been parked in longer-term savings products [while] for individuals, we see a fall in household deposits and an increase in short term loans [which] could reflect rising unemployment resulting from COVID-19”.
In any event, the overall bullish tinge from last week is still discernible even as jitters and a generalized sense of uncertainty hang over the 30% rally from the March lows.
“Risk bears are being sent into hibernation”, SocGen’s Kit Juckes remarked.
“[As] markets focus on re-opening economies and policy activism, bears struggle to understand how they can ignore reinfection and economic destruction”, he went on to write Monday, adding that “in most of the world, the pace of new COVID-19 infections is slowing and that helps underpin overall risk sentiment, despite worrying signs in Asia that any complacency can be punished by the virus”.