Morning Bid: About-turn

Exprivia SpA

16/06/2020 09:02

(A look at the day ahead from EMEA deputy markets editor Sujata
Rao. The views expressed are her own.)
For an interactive graphic  tracking the global coronavirus
spread, open https://tmsnrt.rs/3aIRuz7 in an external browser.
Ka-boom! In a stroke, the U.S. Federal Reserve dispelled the
gloom that was pervading markets yesterday, announcing it would
start purchasing corporate bonds via its Secondary Market
Corporate Credit Facility (SMCCF). It also kicked off its Main
Street Lending Program, a $600 billion facility for companies
struggling to access finance. 
    But the Fed can't claim all the credit for the turnaround,
which started after a report the United States may allow
companies to work with China's Huawei on new 5G standards,
potentially easing tensions with China. Finally, Bloomberg
reported Washington is considering $1 trillion in new
infrastructure spending. 
    So the S&P500 which traded in the red all day, closed 0.8%
higher, the Nasdaq bounced 1.4% and Treasury yields rose.
    Everything is following Wall Street's cue today, with a near
1% rebound on MSCI’s world index while S&P500 are tipped to open
higher. A pan-European equity index is up while Japanese and
Korean shares rallied more than 4%. The dollar index has
retreated almost 1% from Monday's highs. 
    There's more stimulus elsewhere too. The Bank of Japan
increased its lending package for companies by $300 billion.
Germany's finance minister will ask parliament to increase new
borrowing by another 62.5 billion euros ($70.5 billion) to a
record 218.5 billion this year.
    Developed economies may also be starting to heal. U.S.
retail sales due later on Tuesday will reveal a record rise in
May, even if the bounce retraces a fraction of the  March-April
collapse. Germany's June ZEW survey may further boost the mood
if it meets expectations of a significant improvement. 
    
    What of rising coronavirus infection rates? That's still
with us -- worldwide more than 8 million people are infected and
a Reuters tally showed several U.S. states had record numbers of
new cases in recent days. China has re-introduced some
restrictions after a new cluster of infections in Beijing. 
    But coronavirus or not, activity is resuming globally --
British shops are reopening, tourists are arriving in Spain and
four flights a week will resume between the United States and
China. Even British baker Greggs – of vegan sausage roll fame –
plans to reopen 800 shops, while theatre chain Cineworld will
break out the popcorn from July. 
    But if travel and leisure shares have rebounded over 50%
since mid-March, some turbulence remains--  Lufthansa is trying
to agree swingeing job cuts with workers, while SAS said it
needs $1.3 billion in new funding. British Airways was labelled
a "national disgrace" by a parliamentary committee which accused
owner IAG of exploiting the crisis to cut jobs and downgrade the
work terms of remaining employees.
    In market action: Online fashion retailer Zalando shares are
down 2% after a share sale by Sweden's Kinnevik. A boost for
banknote printer De La Rue which said Britain's Serious Fraud
Office closed an investigation into the company's South Sudan
business. 
    In M&A, telecoms infrastructure company Sirti could make an
offer for the turnaround of rival Italtel. Australian
infrastructure fund Macquarie has reportedly made an offer to
Italy's Enel for its stake in broadband operator Open Fiber. 
    Emerging markets are the pandemic's new hotspots, yet many
investors are piling back into the sector. Tuesday's winners are
Korea and Hong Kong with gains of 5% and 3% respectively.
However, Brazil looks to be in trouble. Its real slumped 3% on
Monday after the Treasury Secretary resigned, adding to the
series of officials quitting President Jair Bolsonaro's cabinet.
 
    

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