(12 MAY 2020)DAILY MARKET BRIEF 1:Risk appetite fades as investors gauge reopening risks

Equities in Asia mostly turned negative after European and US markets made a mixed start to the week amid rising concerns regarding what could go wrong as businesses reopen gradually across the globe. Gains in technology and healthcare stocks were offset by losses elsewhere. In the coming days, we could expect a deteriorating risk appetite as investors move from pricing the revival of the economic activity to the evaluation of risks as the businesses get back to work. These risks include a renewed pickup in new coronavirus cases, the possibility of another halt in activity and a slower than expected recovery.

Airline companies remain unloved, producer of health and hygiene products continue their rise as energy and commodity stocks are hesitant.

Hang Seng (-1.78%) led losses in Asia as a renewed coronavirus panic would mean a longer period of grounded planes and less retail activity in the city, as the housing bubble starts to burst. Nikkei (-0.09%) traded flat-to-negative, Shanghai’s Composite retreated 0.59% and ASX 200 fell 1.46%.

Activity in FTSE (-0.19%) and DAX (-0.34%) futures hint at a negative start. But energy companies could recover as oil has a firm grip near the $25 per barrel.

In a surprise decision, Saudi decided to trim its daily oil production by 1 million barrels. Slower buildup in US stockpiles and lower production elsewhere should throw a floor to the falling oil prices as investors await the oil demand to pickup in the coming months. The end of June contract will be a good test for the oil recovery, as speculative long positions will likely walk away with the approach of the rollover date. The size of another potential dip in prices will give a clear opinion on the health and sustainability of the actual recovery in oil. Support within the $10/15 pb area could be a sign of a medium-term positive correction.

Demand in the US dollar and US government bonds remain firm as the US treasury will be issuing $96 billion debt from this week to finance the huge government spending to combat the virus-led economic damages in the US.