Indian bonds gain after early fall; fiscal package details awaited

Indian bonds gain after early fall; fiscal package details awaited

By Ritu,

Capital Sands

Indian bonds recovered from early falls on Wednesday as investors chose to wait for details of the government’s 20 trillion rupee ($266 billion) fiscal package aimed at supporting an economy ravaged by a weeks-long coronavirus lockdown.

Prime Minister Narendra Modi said on Tuesday night that the package was equivalent to nearly 10% of India’s gross domestic product, and was aimed at the multitudes out of work and the businesses reeling under the prolonged shutdown.

Expectations are high that the Reserve Bank of India (RBI) could help support the market by way of a pre-set open market operation calendar, operation twist to manage the maturity curve, or presence in primary auctions or private placements if required, DBS Bank economist Radhika Rao said.

Most analysts said the government would now be looking at a fresh stimulus of roughly 10-12 trillion rupees, after deducting the first stimulus package of 1.7 trillion rupees and the measures taken by the RBI so far.

Traders said market positioning was light, and shorting bonds was not working amid a lack of details on the economic package, helping the pull-back in yields.

Yields are expected to hold in a tight range ahead of the finance minister’s press conference scheduled for 1030 GMT, which could throw more light on specifics of the stimulus package.

Market participants however said they did not expect the government to further increase market borrowings beyond the 4.2 trillion rupees hike announced earlier this month.

The government is scheduled to borrow a record 12 trillion rupees from the market in the current fiscal year to March 2021, and analysts project the fiscal deficit could rise to at least 5.5% of the gross domestic product, sharply above the budgeted deficit of 3.5%.

Europe Trades in Tight Ranges; Vodafone Outperforms

Europe Trades in Tight Ranges; Vodafone Outperforms

By Ritu,

Capital Sands

European stock markets traded in tight ranges Tuesday, as investors weighed up the benefits of reopening economies with the possibility of a second wave of Covid-19 victims.

At 3:55 AM ET (0755 GMT), the DAX in Germany traded 0.1% higher, France’s CAC 40 fell 0.08%, while the U.K.’s FTSE index was up 0.3%.

France’s economic downturn is easing as the country emerges from a lockdown imposed in mid March, although activity remains mired at levels far below normal, the central bank said on Tuesday.

The euro zone’s second-biggest economy was operating 27% below normal levels in April, a little better than the 32% gap seen in the second half of March, the Bank of France said, summarizing responses from its monthly business climate survey.

This comes as countries around the world gradually ease restrictions in an effort to restart their economies.

However, the Robert Koch Institute in Germany, the country widely seen as having handled the crisis the best in Europe, reported that the “reproduction rate” – the number of people each person infected with the coronavirus goes on to infect – had risen to 1.1 in the wake of the relaxation of national guidelines.

Any rate above 1 means the virus is spreading exponentially, and this will be seen as a worrying outcome.

This follows the discovery of five new cases in Wuhan in China, where the pandemic originated, as well as a new outbreak in South Korea, whose aggressive testing and contact tracing had kept infection rates low during the virus’ first wave.

In corporate news, Vodafone stock climbed 5.8% after the world’s second-largest mobile operator met expectations with a 2.6% rise in full-year core earnings. However, it did not give a current year outlook due to the uncertainty caused by the coronavirus.

On the flip side, TV and stereo maker Bang & Olufsen dropped nearly 10% after saying it will ask shareholders to approve a 400 million crown ($57.99 million) rights issue to help it through the coronavirus crisis.

AIB Group  fell 2.7% after saying its performance for the first quarter of the year worsened, and warning  it would have to take large credit provisions.

German insurance giant Allianz  slid 2.8% after reporting a big virus-related hit to its property and casualty arm and also suffering outflows of nearly $50 billion from its asset management arm PIMCO. Industrial giant Thyssenkrupp  slid 10% after detailing another big loss in its fiscal second quarter and the promise of an even bigger one in the current quarter.

Oil futures edged higher Tuesday, continuing to be helped by Saudi Arabia’s move Monday to voluntarily deepen its production cuts.

At 3:55 AM ET, U.S. crude June futures traded 2.2% higher at $24.66 a barrel. The international benchmark Brent contract rose 0.9% to $29.89.

Elsewhere, gold futures rose 0.5% to $1,705.80/oz, while EUR/USD traded at 1.0816, up 0.1%.

Europe Higher; Reopening Economies Prompt Optimism

Europe Higher; Reopening Economies Prompt Optimism

By Ritu,

Capital Sands

European stock markets posted gains Monday, amid growing optimism as more countries start to reopen their economies.

At 3:45 AM ET (0735 GMT), the DAX in Germany traded 0.5% higher, and France’s CAC 40 rose 0.2%. The U.K.’s FTSE index gained 0.8%, making up for lost time as Friday was a holiday.

France, the second largest economy in the euro zone, is set to emerge cautiously from one of Europe’s strictest lockdowns on Monday, while  the U.K., now the hardest hit country in Europe in terms of deaths, has announced tentative plans to lessen social distancing measures.

This follows a number of European countries — including Denmark, Norway, Spain, Italy, Austria and Germany — which have also started to lift lockdown measures.

The European economy has been hard hit by the measures taken by the various national governments to shut down their respective economies to curb the spread of the Covid-19 virus.

European Central Bank President Christine Lagarde said, a couple of weeks ago, that the euro-area economy could shrink by as much as 15% as a result of the pandemic.

In corporate news, Ericsson  stock climbed 0.9% after lifting its forecast for 5G subscriptions globally to around 2.8 billion by 2025 from 2.6 billion seen previously, as a consequence of the coronavirus outbreak. German consumer products maker Henkel was flat after reporting hat the pandemic fueled robust sales of cleaning products in the first quarter, while payments company Wirecard stock rose 8.8% after the company appointed a new chief compliance officer. It’s still fallen 30% since a report by KPMG into suspect accounting practices failed to clear management’s name, however.

On the flip side, easyJet  stock slumped over 7% after the U.K. government announced over the weekend plans to introduce a 14-night quarantine on incoming travellers.

Oil futures slipped back Monday, consolidating after recent gains had pushed the sector from the all-time lows seen recently.

At 3:45 AM ET, U.S. crude June futures traded 2.2% lower at $24.20 a barrel. The international benchmark Brent contract fell 2.1% to $30.32.

Elsewhere, gold futures fell 0.3% to $1,708.80/oz, while EUR/USD traded at 1.0833, down 0.1%.

Europe Pushes Higher as Trade War Threat Recedes

Europe Pushes Higher as Trade War Threat Recedes

By Ritu,

Capital Sands

European stock markets pushed higher Friday, helped by a lessening of tensions between China and the U.S. ahead of key employment data.

At 4 AM ET (0800 GMT), the DAX in Germany traded 0.8% higher, and France’s CAC 40 rose 0.6%. The U.K.’s FTSE index was closed due to a holiday.

China’s Vice Premier Liu He talked with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin by phone on Friday Beijing time, according to China’s Xinhua News Agency. The two sides pledged to cooperate on the economy and public health, the report said.

The two sides have traded barbed comments about the origin and spread of the Covid-19 pandemic over recent days, with the Trump administration at one point threatening trade sanctions as a punishment for China’s perceived part in the outbreak.

In corporate news, ING  stock climbed over 5% despite the Dutch bank posting a drop in first quarter profit of 35% on the back of higher provisions taken for the potential fallout from the coronavirus outbreak. The numbers were still better than expected.

However, activity is likely to be limited Friday ahead of the key U.S. employment report for April, which will capture an entire month of lockdown measures that brought large parts of the economy to a standstill.

Economists expect that nonfarm payrolls plunged by 22 million last month, when the data are released at 8:30 AM ET (12:30 GMT).

“That bad report tomorrow is actually going to understate how bad the damage has been,” Minneapolis Federal Reserve Bank President Neel Kashkari explained, adding that the reported unemployment rate could be as high as 17%, but he says the true number may be as high as 24%. “It’s devastating.”

Oil futures pushed higher Friday, with investors cautiously optimistic as lockdown measures continue to be loosened in the U.S. leading to slow but steady increases in demand.

At 4 AM ET, U.S. crude June futures traded 4.8% higher at $24.69 a barrel. The international benchmark Brent contract rose 2.8% to $30.28.

Elsewhere, gold futures rose 0.2% to $1,729.80/oz, while EUR/USD traded at 1.0828, largely flat.

Europe Edges Lower; FTSE 100 Outperforms

Europe Edges Lower; FTSE 100 Outperforms

By Ritu,

Capital Sands

European stock markets traded slightly lower Wednesday amid weak economic data, while better than expected earnings helped the U.K. to outperform.

At 4:35 AM ET (0835 GMT), the DAX in Germany traded 0.1% lower, France’s CAC 40 fell 0.2%, while the U.K.’s FTSE 100 index traded up 0.7%.

German factory orders slumped 15.6% in March to their lowest level since records began in 1991, while IHS Markit’s final Composite Purchasing Managers’ Index for the euro zone, seen as a good indicator of economic health, plummeted to 13.6 in April from March’s already dire 29.7, easily its lowest reading since the survey began in 1998.

On a busy day for corporate news, BMW  stock fell 3% despite reporting a 133% rise in first-quarter profit. That was mainly due to a one-off provision in the year-earlier period. The German automaker offered up downbeat guidance, saying the impact of the coronavirus could erode demand and profit over the whole year.

Norwegian Air Shuttle  slumped 11% after saying it would sell new shares at a 79% discount to the latest traded price as it seeks to boost its equity in order to qualify for Norway’s government aid package.

Italian bank UniCredit eked out a 1.0% gain despite posting a 2.7 billion-euro loss on soaring provisions.

By contrast, shares in ITV , Britain’s biggest free-to-air commercial broadcaster, rose over 4% despite saying ad revenue last month fell by 42%, while withdrawing its 2019 final dividend. Investors had worried that the figures could have been worse.

Ocado  stock rose 2% after the British online supermarket said retail revenue soared 40% year-on-year in its second quarter to date as shoppers in coronavirus lockdown sought deliveries to avoid venturing out. And pharma company AstraZeneca rose 1.4% to another all-time high after the U.S. Food and Drug Administration approved its Farxiga drug for treating heart conditions.

The countdown to Friday’s historic employment report begins Wednesday with a measure of April’s private sector job situation.

ADP  issues its payrolls report at 8:15 AM ET (1215 GMT), the first full measure of a month the country spent on lockdown restrictions. Economists expect that private-sector payrolls plunged by 20.05 million, according to forecasts compiled by Investing.com.

Oil futures edged higher Wednesday, helped by the American Petroleum Institute saying late Tuesday that its measure of inventories for the week ended May 1 rose by 8.4 million barrels, compared with a rise of 10 million barrels the week before.

The Energy Information Administration will post its figures for crude stockpiles for the week ended May 1 at 10:30 AM ET (14:30 GMT).

At 4:35 AM ET, U.S. crude June futures traded 3.3% higher at $25.36 a barrel. The international benchmark Brent contract rose 2.5% to $31.74.

Elsewhere, gold futures fell 0.2% to $1,708.05/oz, while EUR/USD traded at 1.0801, down 0.4%.

Bundesbank must stop buying government bonds if ECB can’t prove need

Bundesbank must stop buying government bonds if ECB can’t prove need

By Ritu,

Capital Sands

The Bundesbank must stop buying government bonds under the European Central Bank’s long-running stimulus scheme within three months unless the ECB can prove those purchases are needed, Germany’s top court ruled on Tuesday.

The ruling deals a blow to a scheme, called Public Sector Purchase Programme, that has kept the euro zone’s economy afloat during several crises and raises the prospect of a new conflict between the ECB and its largest shareholder, Germany.

However, the judges in Karlsruhe said their decision did not apply to the ECB’s latest pandemic-fighting programme, a 750 billion euro ($815 billion) scheme approved last month to prop up the coronavirus-stricken euro area economy.

German bonds and the euro sold off of after the ruling, with the benchmark 10-year Bund yield climbing to briefly touch a session high of -0.517% . European stocks cut some gains and the pan-European STOXX 600 index was last up 1.05%.

Ruling in a case that dates back three years, Germany’s top court raised objections to the Bundesbank’s participation in the PSPP, which was launched in 2015 and currently accounts for less than a quarter of the ECB’s monthly asset purchases.

“The Bundesbank may thus no longer participate in the implementation and execution of the ECB decisions at issue, unless the ECB Governing Council adopts a new decision that demonstrates…the PSPP are not disproportionate to the economic and fiscal policy effects,” the judges said.

The judges added the German central bank must also sell the bonds already bought, albeit based “on a – possibly long-term – strategy coordinated with” the rest of the euro zone. German bonds bought under the PSPP were worth 533.9 billion euros at the end of April.

Luis Garicano, a Spanish liberal member of the European Parliament, said the ruling posed a threat to the future of pan-European institutions.

Amassing nearly 3 trillion euros of bonds since 2015, the ECB has long relied on bond purchases to support the economy through crises and a threat of deflation.

As the central bank of the euro zone’s largest economy, the Bundesbank has taken the lion’s shares of those purchases.

With much of the euro zone now in lockdown to halt the spread of the virus, the ECB plans to print another 1 trillion euros to keep borrowing costs down for companies and governments.

But a group of academics in Germany has long argued that the ECB is overstepping its mandate, and that these buys constitute direct financing of governments – a contravention of the central bank’s obligations under the European Treaty.

The German ruling comes after the European Court of Justice has already cleared the scheme, arguing that it does not constitute illegal financing and considers the ECB’s measures proportional.

UK factories suffer worst month in three decades

UK factories suffer worst month in three decades

By Ritu,

Capital Sands

British manufacturers suffered the biggest fall in output and orders for at least three decades in April, as measures to slow the spread of the new coronavirus sent the economy into a steep downturn, a survey showed on Friday.

April’s final IHS Markit/CIPS Manufacturing Purchasing Managers’ Index confirmed the bleak picture painted in a flash estimate released on April 23.

The headline activity index fell to a record-low 32.6 from March’s 47.8, broadly in line with forecasts in a Reuters poll and the earlier flash estimate of 32.9.

“Huge swathes of industry were hit hard by company closures, weak global demand, lockdowns and social distancing measures in response to COVID-19. The only pockets of growth were seen at firms making medical and food products,” said Rob Dobson, a director at IHS Markit , which compiles the survey.

The output component – which IHS Markit says gives a more accurate picture of the scale of the decline – plummeted to an all-time low of 16.3 from 43.9 the month before. Numbers below 50 represent a fall in output at a majority of manufacturers.

Earlier on Friday, trade body Make UK said it feared factory output could more than halve during the current quarter, and said more than 80% of its members had suffered a fall in orders.

A separate survey from the Confederation of British Industry showed that in the three months to April private-sector activity dropped by the most since July 2009.

Britain’s economy went into lockdown on March 23. Although people may still travel to work if they cannot work from home, factories have struggled with a general fall in demand.

IHS Markit said the fall in factory orders in April was the biggest since its survey began in 1992.

Total economic output could fall by more than a third during the second quarter – a drop with no precedent in modern times – according to a scenario published by the government’s budget forecasters last month.

Britain’s government is due to review the lockdown next week. But so far ministers have said there are no grounds for a relaxation yet, as the official death toll nears 30,000.

“The outstanding question remains how long the current restrictions will need to remain in place, and which sectors can start to safely reopen,” Dobson said.

“The pressure is mounting, as the longer the global economy remains in lockdown the greater the cost to industry will grow, and the greater the likelihood that more jobs will be cut.”

Europe Edges Higher; Central Bank Meetings Loom

Europe Edges Higher; Central Bank Meetings Loom

By Ritu,

Capital Sands

European stock markets edged higher Wednesday, with investors cautiously optimistic ahead of key central bank meetings and as the earnings season continues.

At 4:15 AM ET (0815 GMT), the U.K.’s FTSE index traded 0.7% higher, France’s CAC 40 was down 0.2%, while the DAX rose 0.1%. The broader based Stoxx 600 Europe index climbed 0.1%.

The Federal Reserve is set to finish its two-day meeting later Wednesday but, with no change in rates expected, attention will be focused on any guidance the Fed has about the trajectory of the economy.

The focus will then turn to the European Central Bank, which meets Thursday, especially after Fitch’s decision to downgrade its rating on Italian debt to BBB-, one notch above junk.

President Christine Lagarde and her colleagues have already ramped up bond-buying of vulnerable nations, but expectations are running high that the central bank will do more Thursday, given how the region’s governments are struggling to agree on joint fiscal action.

The corporate earnings newsflow has continued Wednesday, with German car giants Volkswagen  and Daimler  both said that they expect to be profitable this year, despite big falls in sales in the first and second quarters due to the pandemic.

Shares in AstraZeneca  rose 1.6% after the drugmaker beat estimates for first-quarter profit and reiterated its 2020 outlook on Wednesday.

Barclays  climbed over 4% despite taking a 2.1 billion pound impairment charge to cover the impact of the virus, saying it was well placed to get through the crisis.

On the flip side, British Airways plans to cut more than a quarter of its jobs in response to the coronavirus crisis, its parent company IAG  said, while reporting a first-quarter operating loss of 535 million euros ($580 million), compared with a profit of 135 million a year ago. IAG shares fell 4.5% after the company also flagged further groupwide restructuring measures to come.

Planemaker Airbus Group  on Wednesday posted a 49% slump in first-quarter adjusted operating profit amid the “gravest crisis the aerospace industry has ever known”.

Oil futures bounced back Wednesday, but the recent volatility continued.

At 4:15 AM ET, U.S. crude June futures traded 16% higher at $13.94 a barrel. The international benchmark Brent contract rose 1.7% to $23.13.

Elsewhere, gold futures fell 0.4% to $1,714.60/oz, while EUR/USD traded at 1.0867, up 0.5% on the day.

Europe Posts Gains as Reopenings Draw Nearer

Europe Posts Gains as Reopenings Draw Nearer

By Ritu,

Capital Sands

European stock markets pushed higher Wednesday amid signs the region’s economic shutdown may be coming to an end, but turmoil in the oil market continued to demand a degree of caution..

At 4 AM ET (0800 GMT), the U.K.’s FTSE index traded 1% higher, France’s CAC 40 was up 0.5%, while the DAX rose 1%. The broader based Stoxx 600 Europe index climbed 1%.

Italy could start lifting strict stay-at-home orders from May 4, the country’s Prime Minister Giuseppe Conte said Tuesday, in a post on social media.

In addition, Spain’s Prime Minister Pedro Sanchez said on Wednesday his government plans to begin winding down the coronavirus lockdown measures in the second half of May.

These are the two hardest hit countries in Europe, with over 45,000 confirmed deaths due to Covid-19 combined.

Yet, gains are limited as there remains a strong sense of caution in the market, particularly with regard to oil.

At 4:05 AM ET, U.S. crude June futures traded 1.0% lower at $11.46 a barrel. The international benchmark Brent contract fell 11% to $17.25.

In corporate news, shares in Ericsson climbed 3.1% after the telecommunications equipment company backed its guidance after feeling only a limited impact from the coronavirus.

On the flip side, shares in Heineken fell 1.2% after the brewer reported a sharp drop in net profit for the first quarter as the virus hit volumes in March.

UniCredit , Italy’s largest bank, plans to take an additional loan-loss provision of 900 million euros ($977 million) for the first quarter to account for the economic impact of the coronavirus outbreak.

Elsewhere, gold futures rose 2% to $1,721.45/oz, while EUR/USD traded at 1.0865, up 0.1% on the day.

Japan’s battle with pandemic may mark end of Abe’s fiscal experiment

Japan’s battle with pandemic may mark end of Abe’s fiscal experiment

By Ritu,

Capital Sands

The huge cost of the coronavirus pandemic is upending Japan’s seven-year experiment to rescue the economy from its debt timebomb, as recession fears prompt calls for “helicopter money” – unlimited spending bankrolled by the central bank.

Days after Prime Minister Shinzo Abe launched a nearly $1 trillion stimulus package to battle the pandemic’s financial fallout, some ruling party lawmakers are calling for even bigger spending.

Already, the government plans to boost bond issuance to a five-year high of 147 trillion yen ($1.35 trillion), or 30% of the size of Japan’s economy, to pay for the stimulus.

But even as global governments and central banks pull out all the stops to reduce the economic fallout, Japan is a grim reminder that a debt timebomb may be inescapable.

Japan could issue even more debt, as economy minister Yasutoshi Nishimura has said the latest package won’t be the last if growth remains in danger.

The missed opportunity to fix Japan’s finances may squeeze spending for the younger generation and constrain the country’s options for supporting one of the world’s fastest-ageing populations.

It also marks a death knell for premier Shinzo Abe’s fiscal policy, which relied on higher tax revenue backed by strong economic growth – instead of painful spending cuts – to restore Japan’s fiscal health, analysts say.

“Abenomics has kept the economy in good shape for quite a long time,” said former Bank of Japan board member Takahide Kiuchi, pointing to Abe’s stimulus policies, launched in late 2012 to pull the country out of deflation.

“If that time had been spent fixing Japan’s finances, the government would have had more scope to boost spending without relying excessively on debt issuance,” he said. “The government and the BOJ were complacent. They’re responsible for this mess.”

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