(16 April 2020)DAILY MARKET BRIEF 1:Weak bank profits, ugly economic data weigh on global risk appetite

Global risk appetite deteriorates as ugly economic data added to weak bank earnings confirm that a sizeable recession is knocking on the door. US banks are increasing their bad-loan provisions to record levels on fear that credit-card holders and businesses may not pay back their interests and loans. Still, trading revenues for Goldman Sachs, Bank of America and Citi beat estimates as hectic first quarter trading and high market volatility helped boosting activity. Moving forward, there is a growing chance that near zero interest rates will severely hit banks’ profit margins. Therefore, bank stocks traded south in New York, along with the energy sector.


On the data front, retail sales in the US tumbled by a record 8.7% m-o-m in March; the industrial production contracted 5.4% during the same month. And more disquietingly, Empire State Manufacturing index that printed a historical slump of 78.2 (versus -35.2 expected by analysts and -21.5 a month earlier) hinted that the worst is yet to come as activity across the United States fell to an anemic level following the general lockdown to contain the virus contagion. The Philly Fed manufacturing index will likely reveal a similar result later in the session.


And even with the strict measures taken to stop the virus from spreading, there are more than 2 million infections across the world.


Hence, equities are offered on the back a powerful cocktail of bad corporate and economic news, and strong headwinds could further hit the market following a near 50% recovery in stock prices over the past weeks.


Now it is too early to tell whether we are at the peak of another roller coaster ride, but the chances are that we see a renewed bearish wave. There is a stronger case building for a W-shape correction. Investor appetite may not return to ideal levels before the much-dreaded earnings season.
In Europe, the energy heavy FTSE fell 3% on Wednesday, dragged down by a hefty unwind in energy and banking stocks, as well.


Activity in FTSE futures (-0.12%) hint at a bearish start to Thursday’s session; mining and energy stocks will likely remain on the chopping board as the global mood worsens.

By Ipek Ozkardeskaya