(A look at the day ahead from EMEA deputy markets editor Sujata
Rao. The views expressed are her own.)
March 4 (Reuters) - Hopes that an emergency Fed rate cut
would jumpstart battered stock markets were quickly dashed, with
Wall Street and Europe closing weaker and gold soaring – who
remembers when a 50 basis point cut last had this kind of
impact? In short, the move has backfired – possibly by spooking
markets who may be assuming the Fed knew something nasty they
weren't telling, hence the decision to strike preemptively.
The other issue is the futility of it all – as one analyst
puts it, lower interest rates can't help you if you are in bed
with coronavirus. Or for that matter, if you have to shut your
factory because workers have the virus. One thing, the Fed move
did was to cut the dollar's yield premium against other
developed markets – U.S. 10-year yields sank below 1% for the
first time, taking the premium over German Bunds to the lowest
since 2017, down 30 bps this year. It's also weighing on the
dollar, something the U.S. administration might not be too upset
about.
That may not last – the ECB may cut rates next week and the
export-reliant euro zone is more exposed to virus economic
damage. Euro-dollar scaled $1.12 yesterday, though its now off
that as the dollar index rises off 5-month lows. The yen is down
0.4% and the Canadian dollar is awaiting the Bank of Canada
meeting that should lower rates to 1.5%.
Meanwhile, Korea shows how it's done -- the government
announced a $9.8 billion stimulus package, boosting stocks more
than 2% and the won to two-week highs
Still, this morning European shares are a bit firmer
and MSCI's global index is flat after losing 1% yesterday.
Chinese stocks are up 0.6%. U.S. equity futures are up a
whopping 1.4% -- the catalyst might be Joe Biden strengthening
his position in the Democratic primaries after Super Tuesday
over leftist Bernie Sanders.
The yuan at six-week highs has regained the losses made
since opening from New Year holidays, possibly as the number of
new infections in China falls. And the central bank kept
short-term interest rates steady, despite the Fed and even as
Caixin PMIs showed the services sector had its worst month ever
in Feb, almost halving from January levels. But expect more
cuts; with the Fed in a full-blown easing mode, there is no way
China can hold off.
In fact all dataflow reinforces the gloom -- a Chinese
survey showed expectations for the one-year business outlook the
gloomiest since 2005. Will U.S. non-manufacturing ISM survey
confirms whether services are indeed in contraction, (as PMIs
signalled earlier)? There will also be jobs figures from ADP,
the company handling one-fifth of U.S. private payrolls. And
Europe releases Feb retail sales and final service-sector PMIs –
normally final readings are a non-event but now they could they
could be important because of how fast sentiment is changing.
Bond markets have steadied, though the U.S. 10-year yield
remains below 1% and it may be a matter of time before German
10-year Bund tests the minus 0.74% record low.
On the equities front, European Q4 earnings are mostly
behind us but among trading updates published today is Dialog
Semi which expects its chip supply chain to return to normal in
Q2 2020.
In the M&A beat: Investment group Exor announced it entered
an MoU to sell its 100% stake in reinsurer PartnerRe to France's
Covea for $9 billion in cash.
Companies news include a possible boost for Roche as China
will use an arthritis drug to treat some coronavirus patients in
severe condition and it wins a fast-track review status in the
US for a new diagnostic approach for liver cancer.
But possibly grim for Intu which failed to raise capital and
for German chemicals group Evonik Industries which sees
chemicals sales slowing. Same for Engineering group Andritz
which expects a slight increase in sales and a flat EBITA this
year. Wizz Air shares has lost ground after cutting flights and
further reducing capacity.
Legal and General posted a 12% rise in 2019 operating profit
but shares are tanking.
Struggling Pandora will cut 180 staff and eliminate an
organizational layer in an effort to move closer to consumers.
In emerging markets, South Korean shares gained 2.2% while
broader emerging shares rose 0.5%, their third consecutive day
of gains and the emerging currency index is up 0.3%
Lebanon's government is weighing options for the $1.2
billion Eurobond maturing in March.
(Editing by Toby Chopra)