(A look at the day ahead from Karin Strohecker, chief correspondent, emerging markets. The views expressed are her own.) The equity rally fuelled by optimism over economic recovery from the coronavirus pandemic looks like it might be losing some steam, despite more good news from some key financial centres.
London saw no coronavirus-related deaths in the past 24 hours, with more easing of lockdown restrictions on the way. New York infection rates declined to the lowest level since outbreak started.
On equity markets, milestones have come in hard and fast. The S&P erased all its losses suffered this year, Nasdaq hit a record high and world stocks are 7% shy of February’s record high. But momentum could be waning: European markets ground 0.1% to 0.3% higher at open while London’s FTSE is in the red and U.S. futures point to Wall Street losses later in the day.
Oil prices are still sailing higher, while the dollar index is moving up, too, further off two-and-a-half-month lows hit last week.
Equity-markets buoyancy contrasted with all the signs of gloom inn the real economy and with the World Bank’s warning on Monday that the fallout from the pandemic has put the global economy on track for its worst contraction since World War Two.
It predicted developing nations would see economies contract for the first time in six decades, potentially plunging another 100 million people into poverty.
Eurozone gross domestic product data due out this morning is set to confirm that the bloc’s economy shrank 3.8% in the first quarter.
Safe-haven bond yields are extending their decline for a second day from last week’s dramatic highs. Longer-dated U.S. Treasury yields are coming down before a Federal Reserve meeting on Wednesday, with 10-year yields down 6 bps.
The steepening of the 2-10 yield curve has also eased a bit, given growing speculation the Fed could resort to yield curve, even if that step is seen unlikely this week.
Euro zone bond yields held steady before a supply-heavy session expected to see several borrowers sell bonds. Aside from optimism over the EU recovery fund, it looks as if issuers are also taking advantage of the European Central Bank’s increase to the PEPP stimulus facility last week.
In corporate news, Hong Kong’s government is leading a $5 billion rescue package to help stricken airliner Cathay Pacific. Telefonica’s German division signed a deal to sell thousands of phone masts for 1.5 billion euros to finance 5G internet investments. Nestle is flogging the North American business of its Buitoni pasta brand.
Investors led by Czech billionaire Daniel Kretinsky have upped their stake in ProseiebenSat.1 to more than 12%. Some Italian pension funds and bank foundation Cariplo are ready to help Italian infrastructure fund F2i acquire a majority stake in motorway group Atlantia’s unit Autostrade per l’Italia. Elanco Animal Health secured EU antitrust clearance to buy Bayer’s veterinary drugs unit in a $7.6 billion deal.
But despite the broader equity retreat, emerging markets continue to power ahead, with equities extending their gains to eight straight days. The tepid dollar has helped MSCI’s emerging-market currency index close in on three-month highs.