For Global Markets, Next Test Is Whether Virus Rates Rise Again

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Prepare for a risk rally as the new week gets underway. After that, you may as well flip a coin.

The very fact that U.S. markets ended last week on a positive note is likely to ensure trading in Asia starts on the front foot Monday.

Yet the catalog of negatives, from slumping economies and corporate earnings to uncertainty over the U.S.-Chinatrade talks, will probably keep many buyers at bay. And that’s before the success or failure of the easing of coronavirus lockdown measures in some countries is factored in.

“Recovering oil prices, a strong finish to global markets at the end of the week as well as expectations that more governments will announce measures to begin reopening their own respective economies should provide markets with a helping hand into the new trading week,” Jameel Ahmad, a markets analyst at FXTM in London, said.

Stocks rose for a second day Friday, taking gains on the S&P 500 Index to more than 30% since their March low, while the Bloomberg Dollar Index retreated and U.S. 10-year Treasury yields headed back toward 0.70%.

Middle East markets were mixed on Sunday as the number of Covid-19 infections in some parts of the regionjumped. Abu Dhabi’s main stock index rose 1.4%, while that in Kuwait, which has just started a 20-day full curfew, dropped 1.1%.

The following are comments looking ahead to a week in markets:

Goldman Sachs Group Inc. analysts, including Zach Pandl and Karen Reichgott Fishman in New York:

  • “With many countries in the West attempting to reopen their economies, attention has turned to whether new infection rates will remain low as mobility picks up”
  • “Uncertainty over the public health outlook argues against a more positive base case on cyclical assets — even if reopening momentum could carry risky assets a bit higher over the near-term”
  • “The broad dollar should remain supported over the near-term, and investors should consider hedges for identifiable macro risks.”

Michael Wilson, chief U.S. equity strategist for Morgan Stanley:

  • “We will see a V-shaped recovery, for two reasons — the historic steepness of the decline in activity, and the unprecedented policy response”
  • “A month ago, our conversations with investors centered on how much downside was left in this bear market and how low the equity markets would trade in the inevitable ‘re-test’ of the March lows. Today, those conversations are quite different, as most investors are no longer of the view that equity market will re-test those lows”
  • “It’s a different kind of bearishness — one that accepts the extraordinary policy response as having done its job to stop the decline but skeptical that it can lead to a sustainable recovery.”

Ryan Lemand, senior executive officer at ADS Investment Solutions Ltd. in Abu Dhabi:

  • The U.S. Federal Reserve and the European Central Bank “have been pumping cash into their economies, into the market, just to prevent the slide of economic slowdown. The effects of this are pretty much perverted, because all of this cash is going to the stock market. And instead of having inflation, we’ve had active price inflation, which has not really benefited the economy. Today, we are paying for that”
  • “Much more cash will need to be pumped, because the markets and the economy got used to it, to so much cash”
  • The trade deal between China and the U.S. “remains extremely important. It is key to how the economic recovery will take place and how this will shape out. If this trade war continues, it is a very bad scenario for the world.”

Aditya Pugalia, director of financial markets research at Emirates NBD PJSC in Dubai:

  • “Notwithstanding weak economic data and poor corporate earnings, global equities closed higher as investors started training their eyes beyond the immediate fallout from the coronavirus. The move also reaffirmed the deepening dependence of equity markets on central banks as they started pricing in the possibility of the Federal Reserve moving rates into negative territory
  • “The week ahead is relatively light on economic data. Hence the focus of investors will remain on corporate earnings and the efforts of governments in easing lockdown measures”
  • “The progress on talks between the U.K. and the European Union will also be monitored in light of dire economic growth projections by the Bank of England.”

Stephen Innes, chief market strategist at AxiCorp Ltd. in Bangkok.

  • “Easy liquidity and the amount of available Fed firepower for long-only investors in the U.S. seem set to continue to propel stocks higher”
  • “Any comments made last week about cracks appearing in markets look like more egg on the face for the perma bears”
  • “But the world is not aglow with optimism. A peek into the trading pad would reveal that May started with more careful positioning from investors in Asia-Pacific, after a subdued to a neutral mood in April. This week could provide a better signpost after a shortened trading week for China, Japan, and Thailand”
  • “We should see better trading sentiment at the start of the week in Asia on the back of trade war calm and the improved U.S. market outlook.”

Ahmad at FXTM in London:

  • “Governments across a number of world nations are somewhat guilty of trying to restore economic productivity sooner than health professionals would like, given the fragile state of the pandemic”
  • “Their success at being able to reopen their own economies while also successfully maintaining the disease outbreak without spikes in infections is going to provide a critical barrier of assessment for investors on how markets will perform over the remainder of the current quarter.”

— With assistance by Filipe Pacheco, and Netty Idayu Ismail

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