A look at the day ahead from emerging markets chief correspondent Karin Strohecker. The views expressed are her own.
A collapse in oil prices to levels last seen more than two decades ago has markets on edge on Monday, serving as a potent reminder that there is still a lot of pain to come from the economic fallout of the coronavirus pandemic and raising questions over just how sustainable recent stock market gains might be. And U.S. crude futures tumbling more than 20% in early Monday trade wasn’t the only dark cloud. Japanese data showed exports slumped by 11.7% in March, falling at their fastest pace since July 2016, as shipments to destinations from the United States to China all suffered sharp declines. Safe-haven bids are sought this morning with yields on U.S. Treasuries easing while the dollar resumed its gains after Friday’s dip.
Stock markets around the world paint a mixed picture. MSCI’s broadest equity index slipped into the red after two days of gains. Japan’s Nikkei index weakened 1.2% and many Asian markets suffered losses, though China’s central bank cutting its benchmark lending rate to reduce borrowing costs for companies lifted blue-chip indexes in the world’s second-largest economy.
Markets in Europe marked a slightly more optimistic start to the week. The benchmark in Frankfurt gained 0.4% and London’s FTSE was not far behind, although Paris suffered losses as investors braced for an earnings season that will shed some light on the scope of the hit experienced by Europe Inc. in March as most of the continent went into lockdown.
Philips reported a 33% year-on-year drop in first-quarter core earnings while EssilorLuxottica, the spectacles company, said it would scrap its dividend and look to cut costs. French car parts company Faurecia reported a 13.5% drop in first-quarter sales. In a sign that businesses are seeking to get back to “new normal”, IKEA aims to start reopening shops in Europe in May, its chief executive said. Meanwhile U.S. futures point to falls on Wall Street.
In fixed-income markets, U.S. Treasuries were in favour while European bonds saw Italy underperform as unease set in ahead of key euro zone meeting on Thursday to address the coronavirus crisis and ways to help hard-hit countries such as Italy and Spain. Bond markets were also bracing for hefty supply this week, estimated in the region of 14 billion to 17 billion euros. Watching euro zone inflation expectations after latest slide in oil prices.
In currencies, the dollar gained as global growth fears hit oil prices and weighed on commodity currencies, with positioning data revealing few surprises as investors ramped up their net short dollar positions last week.
Across emerging markets, equities were under pressure despite the gains in China following the benchmark lending rate cut. Developing currencies also felt the pain. (Editing by Larry King)