Summary: Following the first sustained 2-day bounce since the COVID-19 panic reared its head, sentiment is fading as fatality rates climb in the US.
A mixed day for risk across Asia today, Australia leading the pack with the ASX200 +2.33%, KOSPI -1.1%, Hang Seng +0.76%, Shanghai -0.60%, Nikkei -4.3 at the time of writing.
Sentiment is waning throughout the Asia session, even as the US rescue package makes passage through senate. A sense of buy the rumour, sell the fact, as market participants await the US jobless claims data tonight for a read through on the impact on the real economy. Also hampering sentiment is the markets continued focus on the COVID-19 outbreak and its effects on economic activity, at the current rate, the US will overtake Italy in number of coronavirus cases on Thursday and China on Friday. The US is still early on in the infection curve, and the recent rally in risk sentiment is at odds with this outlook. Markets will not stabilise without the spread of the pandemic slowing with an eye to lockdowns being lifted. The key being, we do not know the scale of problem so do not know if enough has been done to arrest downside.
In terms of COVID-19 we are just entering the first critical phase of the outbreak in the US and it is clear by now the markets are not just looking for stimulus measures, monetary and fiscal, to relieve the pressure on risk assets, the more pressing matter is the containment of the virus itself. Stimulus packages quell downside and they prime markets for stabilisation, but are not a cure all. There is a real disconnect between the real picture which is cascading unemployment, bankruptcy headlines and a true “bottom” in equities. Therefore, we are sceptical of a lasting relief rally until contagion is under control, transmission rates reduced and infection curve flattened.
Jobless claims tonight – we know it is going to be bad, but the consensus estimate is likely too low. In the US 70% jobs are in private sector services; economic activity, particularly the services sector, has experienced a cliff edge decline as lockdowns are enacted. California according to media claims reportedly had 1mn unemployment filings so far this month and New York 1.7mn calls to state unemployment offices. Combined state local media reports and google search trends indicate the consensus 1.5mn is far too low, it could feasibly be double. Whatever the number, it will be a key read on the demand collapse and the notion that this crisis will outpace the GFC in terms of the effects on economic activity.
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