(Repeats for additional subscribers) A look at the day ahead from chief emerging markets correspondent Karin Strohecker. The views expressed are her own.
Some signs over the weekend that the coronavirus spread could be slowing and containment measures might be working have put markets in an upbeat mood this morning - even though many signposts around the globe are still pointing in the wrong direction. Italy reports a fall in death numbers related to COVID-19, numbers in France are improving while in the U.S. the rise in new cases and deaths also slowed down, though it is unclear how sustained that trend will be. However, the worldwide number of new infections has risen past 1.25 million with more than 68,400 deaths. UK Prime Minister Boris Johnson was admitted to hospital late on Sunday night with persistent symptoms, and Japan is about to declare a state of emergency for up to six months.
And then there is the steady trickle of evidence of just how big the hit to the global economy might be. The IMF just launched its new “World Pandemic Uncertainty Index” for 143 countries, which shows that the level of economic uncertainty related to the coronavirus is unprecedented. As of the end of March, the index was reflecting three times the level of uncertainty seen during the 2002–03 SARS epidemic and about 20 times the size during the Ebola outbreak.
Data showed India’s service sector fell sharply into contraction territory in March while the UK’s construction PMI is expected to have done the same. Germany February factory orders showed a sharp fall in orders from abroad, though this was before much of the western world went into lockdowns. Oil prices have been on a rollercoaster in early trade, falling more than 10% after Saudi Arabia and Russia delayed a meeting to discuss output cuts that could put an end to the crude oil standoff, but prices later recovered somewhat after a Moscow policymaker said the two countries were “very, very close” to a deal.
In Europe, bourses jumped at the open, with Frankfurt up 4.4% in early trade, Paris advancing 3.7% and London not far behind. The gains come even though corporate headlines are still somewhat muted. Travel and Leisure stocks, a typical gauge of coronavirus fear, are up 4.6% with frontline stocks such as cruise operator Carnival up 12%.
Cyclical stocks are also in high demand with the automotive sector leading gains with a 6% rise. Another big winner is Rolls-Royce, which scrapped its final 2019 dividend but said it secured an additional 1.5 billion pound revolving credit facility, bringing its overall liquidity to 6.7 billion pounds.
U.S. futures point to a 4% jump when Wall Street opens.
In currency markets, the dollar rose to a 10-day high against the yen after Japanese PM Shinzo Abe said he may declare a state of emergency as early as Tuesday. Against the euro the dollar shed some strength after Friday’s terrible U.S. payrolls showed just how large the challenge is to the world’s biggest economy. Sterling hovered close to its lowest in more than a week against the greenback and traded a touch softer against the euro after PM Johnson’s admission to hospital.
The rekindled risk appetite also saw German bond yields move broadly higher, though upside to yields is seen as limited given the scale of uncertainty, while bond markets were also looking ahead to the euro group meeting that kicks off on Tuesday.
Perky risk sentiment also lifted emerging equities by 0.9%. (Editing by Hugh Lawson)