(15 MAY 2020)DAILY MARKET BRIEF 1:Equities recover but sentiment remains brittle
US equities rebounded; the Dow (+1.62%) and the S&P500 (+1.15%) gained on Thursday, as bank stocks rallied 2.64% as the Federal Reserve (Fed) Chair Jerome Powell talked down the possibility of negative rates for the moment. Nasdaq advanced 0.91%.
But gains in US futures remained limited in Asia, on the back of rising tensions between Washington and Beijing amid Donald Trump said he doesn’t want to talk to Xi Jinping for now. The blame game continues gaining momentum worrying that the frictions between the two countries could take another toll on the global trade. And a renewed US-China tension is the last thing the world needs right now. Especially provided that China probably has little response, and remedy, to Trump’s accusation that they invented the virus on purpose. We still believe that Beijing will try bettering the relationship and will refrain from adding gas to fire.
Data-wise, China has some good news. The slump in industrial production fell to 4.9% in April from -8.4% printed a month earlier, bringing the production on yearly basis to 3.9%, better than 1.5% penciled in by analysts. The decline in retail sales remained slightly stronger than analyst expectations, but overall, today’s data confirmed a rapid recovery in Chinese macro-metrics, giving morose investors hope that life after coronavirus may not be as dull as they fear.
However, the Chinese figures certainly don’t reflect how the recovery will be in the rest of the world. Recovery outside China will likely remain dull and at risk of a second contagion wave, which could further hurt businesses and public finances.
Due today, the US retail sales may confirm a 12% m-o-m slump in April, versus -8.4% recorded a month earlier. Soft US data should translate into stronger safety flows and a firmer US dollar.
But oil traders are hanging on to the hope that the slump in oil demand will be less than the IEA’s previous forecast on prospects of increased mobility in Europe and in the US. And key oil producers continue trimming their sales to reduce the gap between the record fall in oil demand and the all-time high production worldwide. Latest news suggest that Saudi’s Aramco is now selling to key buyers only. Prospects of a softer decline in oil demand and waning supply continues pushing oil prices higher. WTI crude tests the $28 a barrel, as Brent crude fights back the $32 resistance. But mounting anxiety regarding the pace of normalization and rising US-China tensions could cap the WTI’s upside potential before the $30 mark.
Activity in FTSE futures (+1.01%) hint at a positive open in London; energy stocks could surf on the positive oil wave before the weekly closing bell.
