(A look at the day ahead from EMEA deputy markets editor Sujata Rao. The views expressed are her own.) As if economic and pandemic troubles were not enough, the world’s two most populous countries are engaged in border clashes that have killed at least 20 Indian soldiers and almost certainly some Chinese. Then nuclear-armed North Korea blew up a liaison office with the South and moved military police into the demilitarised zone.
But if we are back in risk-off mode, that’s more to do with coronavirus fears in China, where authorities have closed Beijing schools and curbed flights. U.S. infection rates are at record highs in at least six states, too.
Those above factors have dampened markets today, but we also saw Japanese exports shrink to the lowest in a decade, led by a 70% slump in auto sales to the United States. UK data showed inflation at its lowest in four years — additional fodder for the doves at the Bank of England before its meeting tomorrow.
All that only goes to confirm what Federal Reserve Chair Jerome Powell said yesterday — green shoots do not by any means imply a quick recovery. U.S. retail sales may have rebounded a record 18% last month, but they didn’t recoup the drastic March-April record falls.
Similarly, U.S. housing starts and building permits later today should show a 15% to 25% bounce, but that will still leave them significantly down on the year.
So Asian and world shares are flat while European markets are opening in positive territory. Wall Street futures are higher, tipping shares to extend yesterday’s gains of around 2%.
Big European news today is HSBC, which is resuming a massive redundancy plan it had put on ice following the coronavirus outbreak – plans envisage cutting 35,000 jobs, mostly in investment banking and trading. HSBC shares have underperformed European peers this year but are up 0.6% today.
In other European corporate news: Royalty Pharma Plc shares jumped 57.1% in their Nasdaq debut on Tuesday, showing robust appetite for new equity; British bookmaker William Hill launched an issue of shares worth up to 20% of its share capital as it posted a slight improvement in total net revenue, helped by the return of horseracing and the German Bundesliga
Kingfisher underlying sales increased 21.8% year-on-year in its second quarter so far to June 13 as its stores across Europe emerged from lockdowns; Dutch postal and parcel services provider PostNL sees full-year normalised operating profit “strongly” above previous guidance.
In airlines, Norwegian Air NWC.OL will resume flights on 76 routes, bring back into service 12 of its grounded aircraft. Lufthansa shares are up 1.5% after investor Heinz Hermann Thiele raised his stake in the airline above 15%.
Volkswagen will pay a 48% premium to buy out minority shareholders of the Audi division.
In emerging markets, shares are up for the second day straight while currencies are being supported by dollar weakness. The exception is South Korea’s won, which was driven 1% lower by heightened tensions on the peninsula.
Brazil is the one to watch, with rising infection rates, a brewing political crisis and yesterday’s data showing a record retail sales plunge in April - its second-quarter economic contraction could be more severe than expected. The central bank today is expected to cut rates by 75 bps to 2.25%.
Finally, new equity issuance is catching on in non-Asian emerging markets, too — a share sale in retailer Detsky Mir by the Sistema conglomerate and the Russia-China investment fund raised $158 million.
Editing by Larry King