(27 April 2020)DAILY MARKET BRIEF 1:Equities up on improved risk appetite

Asian equities kicked off the week on a positive note following a firm close in the US on Friday.

Nikkei and Topix gained more than 2% after the Bank of Japan (BoJ) shortened its two-day meeting to three hours and announced to continue buying JGBs and treasury bills ‘without setting an upper limit’ and to raise its annual target on corporate bond and commercial paper purchases to 20 trillion yen to help companies find easy funding through the pandemic-led economic slowdown. The BoJ kept its policy rate unchanged at -0.10%, however, as officials believed pulling the rates lower wouldn’t help boosting demand for credit.

The USDJPY eased to 107.20 and the death cross formation (the 50-hour moving average crossing below the 200-day moving average) hints at further technical shorts on USDJPY before the pair recovers on improved appetite.

The Federal Reserve (Fed) and the European Central Bank (ECB) will also announce their latest policy decisions on Wednesday and Thursday, respectively. As European politicians fail to satisfy the investor appetite on the fiscal stimulus leg, the ECB is expected to move toward purchases of junk bonds to support businesses in their combat against the coronavirus-led economic recession. While the Fed has perhaps little margin to add to its all-in policy, even though the jobless claims surpassed 26 million last week amid the economic shutdown took a heavy toll on businesses across the United States.

The GDP figures in Europe, Canada and the US should give a first glimpse on the extent of economic damages later this week. Investors keep in mind that the numbers could fall further in the second quarter, as most developed economies halted businesses starting from the end of March only, and the activity was near null for the entire month of April, pulling the latest PMI figures to near single digit levels.

But the number of Covid-19 cases shows signs of improvement globally. As we move toward the descending portion of the curve, most developed nations disclose plans of reopening businesses starting from May.

Whether the reopening would lead to a renewed spike in the number of cases is yet to be seen. Good news is, this is not what has happened in China – at least relying on the numbers available to us, and Chinese live animal markets, where this kind of animal-led diseases tend to appear, are open to business. Meanwhile, Shanghai announced ‘weeks-long’ online and offline shopping festival to help small, medium and large businesses to pull their heads out of water.

By Ipek Ozkardeskaya