Oil prices rally even as Asian equities slip
Asia-Pacific stocks fell and oil prices rallied on Thursday following a sharp drop on Wall Street, as investors grappled with the global economic fallout from the intensifying coronavirus outbreak in the US.
The US was in an earlier stage of combating the pandemic compared with other countries, meaning there would be more bad news for markets in the coming days before the situation stabilised, analysts said.
The “US is weeks behind many European and Asian countries in terms of fighting the coronavirus outbreak,” said Marija Veitmane, senior multi-asset class strategist at State Street Global Markets. “It virtually guarantees horrific infections rate and death headlines, as well economic weakness and earnings collapse reports.”
The MSCI Asia Pacific index fell 0.5 per cent, with losses led by Japan’s Topix stock index, down 1.6 per cent, and Australia’s S&P/ASX 200, off 2 per cent. Hong Kong’s Hang Seng edged up 0.2 per cent while China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks rose 0.7 per cent.
Oil prices jumped, with the international benchmark Brent crude up 10.3 per cent at $27.29 a barrel and US marker West Texas Intermediate rising 9.2 per cent to $22.18.
Overnight on Wall Street, stocks tumbled after President Donald Trump warned that up to 240,000 people could die in the US due to Covid-19. The S&P 500 closed 4.4 per cent lower with banks and airlines among those hardest hit.
Futures markets tipped the S&P 500 to open 1.5 per cent higher when trading begins later on Thursday. The FTSE 100 was expected to edge up 0.4 per cent ahead of markets in London opening.
Investors have suffered a tough start to the second quarter of the year after global stocks plunged by about 20 per cent in the first three months of 2020 on coronavirus fears.
Traders in Asian markets were on Thursday awaiting the US initial jobless claims numbers due to be released later on Thursday. “Last week was a shocker with 3.28m versus the 1.7m consensus. This week the street consensus [is] at 3.7m but there are noises in the market looking at research that puts it closer to 6.5m,” said one broker.
Tokyo-based investors said trading in Japan’s equity markets lacked conviction as the country entered the second day of the new financial year. The central bank’s stock purchases through exchange traded funds was also more subdued than during recent days.
“That reduction is being read as a temporary breather from crisis mode,” said one Japanese broker. “I do not think it will last.”
The mood was downbeat, he added, as fund managers pointed to a report by S&P Global in which the rating agency laid out the credit risks associated with slumping cash flows, tighter financing conditions and crude oil’s slide below $20 per barrel.
The report warned that the default rate among US non-financial corporates could potentially rise above 10 per cent in the next 12 months, and Europe’s into the high single digits.
One hope that investors have clung to in recent sessions is the possibility of additional stimulus from policymakers to support markets and shore up financial systems. But in Asia those hopes could be dimming as analysts warned that further relief measures from China might not be forthcoming.
Iris Pang, chief China economist at ING, said Beijing might choose to delay a targeted cut to banks’ reserve requirement ratios, which could funnel more liquidity to businesses hit by the crisis.
The People’s Bank of China “may want to delay doing so as long as it can, as market interest rates fell yesterday after the quarter-end and the central bank does not want the targeted RRR cut to put further downward pressure on rates”.
Gold prices fell 0.2 per cent to $1,587.82 per ounce while the 10-year US Treasury yield was down 0.02 percentage points at 0.6111 per cent.