UBS Sees Mis-Pricing in Equity Markets
European stocks rose on Monday after Chinese shares advanced along with the yuan as investors took encouragement from the Asian country’s pledges to support the world’s second-biggest economy in the face of the coronavirus outbreak. The yen and gold both slipped.
Gains in the Stoxx Europe 600 Index were led by automakers and telecoms shares. U.S. equity-index futures climbed, though Wall Street was shut for a holiday and Treasuries weren’t trading. European bonds were mixed, while the euro ticked higher after closing on Friday at its lowest since early 2017. The dollar steadied against a basket of its biggest peers.
China’s benchmark CSI 300 Index has recouped its losses since trading resumed from the Lunar New Year break, after the central bank this weekend unveiled plans to reduce corporate taxes and fees. The momentum failed to buoy most Asian markets, however. Stocks dipped in Seoul and Sydney, while Japan’s Topix Index dropped after data showed the country’s economy shrank the most in five years in the last quarter.
Investors in risk assets began the week on the front foot after China’s central bank also said it will let banks run up more non-performing loans. Bloomberg Economics estimated the country’s economy ran at just 40 per cent to 50 per cent capacity in the past week, underscoring the short-term damage done by the coronavirus-linked shutdowns of large swathes of the country. Cathay Pacific Airways Ltd., which counts on China and Hong Kong for about half its revenue, gave a “significant” profit warning and blamed the pathogen.
“If the Chinese economy does recover and you’ve added all this fiscal and monetary stimulus into it as well, the situation could be that you have much stronger emerging markets into the second half,” Sunny Bangia, a fund manager at Antipodes Partners Ltd., said on Bloomberg TV. “A lot depends on how this virus gets contained and if it can morph into something more minor.”
Hubei, the province at the epicenter of the outbreak, reported 1,933 new cases, slightly higher than a day earlier. More than 3,000 travelers on two coronavirus-stricken Carnival Corp. cruise ships are returning home, fanning out to more than 40 countries. Singapore’s government cut its growth forecasts, citing uncertainty over the length and severity of the outbreak. The country is expected to unveil a large stimulus package to mitigate the economic hit.
Elsewhere, Bitcoin fell as much as 7.3 per cent from Friday, slipping back below US$10,000. WTI crude oil held at about US$52 a barrel.
Here are some key events coming up:
Earnings season rolls on with results from companies including: BHP Group Ltd. on Monday; Tuesday brings Glencore Plc, HSBC Holdings Plc and Walmart Inc.; Deere & Co. results are set for Friday.
U.S. celebrates Presidents’ Day on Monday, with financial markets shut.
Germany’s ZEW survey of investor confidence is due Tuesday.
Minutes of the most recent Federal Reserve meeting are published on Wednesday.
Indonesia is expected to cut interest rates on Thursday, following emerging-market peers from Brazil to South Africa which have lowered borrowing costs already this year.
These are the main moves in markets:
The Stoxx Europe 600 Index gained 0.2 per cent as of 8:28 a.m. New York time.
Futures on the S&P 500 Index increased 0.2 per cent.
Nasdaq 100 Index futures jumped 0.3 per cent.
The MSCI Asia Pacific Index fell 0.2 per cent.
The MSCI World Index was little changed.
The Bloomberg Dollar Spot Index was little changed.
The euro edged up 0.1 per cent to US$1.0838.
The Japanese yen weakened 0.1 per cent to 109.87 per dollar.
The offshore yuan strengthened 0.1 per cent to 6.9837 per dollar.
Germany’s 10-year yield was unchanged at -0.40 per cent.
Britain’s 10-year yield increased less than one basis point to 0.63 per cent.
France’s 10-year yield fell one basis point to -0.165 per cent.
Japan’s 10-year yield declined one basis point to -0.033 per cent.
West Texas Intermediate crude dipped 0.2 per cent to US$51.96 a barrel.
Gold weakened 0.1 per cent to US$1,581.71 an ounce.
LME aluminum declined 0.3 per cent to US$1,716 per metric ton.
Iron ore advanced 0.7 per cent to US$88.40 per metric ton.