A look at the day ahead from chief correspondent emerging markets Karin Strohecker. The views expressed are her own.
A rising number of countries heading into lockdown, frantic policy makers around the globe and an impasse in the U.S. Senate to pass a $1 trillion coronavirus response bill has financial markets on the edge again on Monday. Stock markets are dropping and oil prices are under pressure, U.S. Treasury yields have slipped towards one-week lows while the dollar gains.
G20 finance ministers are meeting by teleconference on how to deal with the fallout from the coronavirus and measures taken to slow its spread. Germany is readying an emergency budget worth more than 150 billion euros to shore up Europe’s largest economy. Yet that does little to stop those forecasts of economic doom and gloom coming in hard and fast. Goldman Sachs talks of a sudden stop for the global economy, which it predicts will contract around 1% in 2020 – a sharper decline than the 2008/2009 global financial crisis.
European stocks followed Asia’s lead lower, with Frankfurt, Paris and London down around 4%. Asian markets suffered hefty losses with South Korea, Hong Kong and China mainland falling 2% to 4%. Wall Street futures indicate a fall of 2.6% to 4% at the open.
European companies are adjusting to what looks more and more like a war economy. In an unprecedented move, high-end fashion labels Saint Laurent and Balenciaga (Kering) will start making face masks to ease shortages. French perfume makers owned by LVMH started producing disinfectant gel and Nivea-maker Beiersdorf started serial production of medical-grade disinfectants. Dutch health technology company Philips is ramping up production of critical healthcare products.
In other areas, production is severely slowed or halted altogether. India’s biggest automaker, Maruti Suzuki India, and Mahindra & Mahindra, Mercedes-Benz, Fiat Chrysler Automobiles (FCA) and Hyundai Motor Co said they would halt car production in the country. Brutal measures are being taken: Primark said it would close all of its stores around the world, losing roughly 650 million pounds ($760 million) worth of net sales a month.
The new normal means dividends, buybacks and guidance are now a thing of the past. Shell has suspended the next tranche of its share buyback plan. Norway’s Equinor has put its $5 billion share buyback programme on hold. Swedish home appliance maker Electrolux scrapped its payout and Airbus dropped its proposed 1.4 billion 2019 dividend, suspended funding to top up staff pension schemes, and withdrew its 2020 financial guidance. French broadcaster TF1 has cancelled its guidance and the lack of financial forecast has become a headache for analysts. The Financial Conduct Authority said on Saturday that Britain’s listed companies should not publish preliminary financial statements for at least two weeks to better assess the coronavirus impact.
In fixed income, U.S. Treasury yields were lower in early European trade, with the 10-year benchmark yields falling 14 bps at 0.80% – their lowest in almost a week. In euro zone bond markets, there is an eerie calm after the wild swings and heightened volatility of the past week as investors assessed the impact of significant monetary and fiscal stimulus. Germany over the weekend said it is readying an emergency budget worth more than 150 billion euros. Most German bond yields were little changed in early trade. Italian bonds came under some selling pressure.
In currencies, the dollar recouped its losses overnight and was head towards last week’s more than three-year high. The Australian dollar and the kiwi dollar led losses. Also aiding the dollar’s gains are latest positioning data, which showed a big flip to net U.S. dollar short positions.
In emerging markets, equities resumed their downward spiral. The MSCI index tumbed 4.3% and many developing currencies got hammered. The Indian rupee weakened 1.3% and sank to an all-time low against the dollar. The South Korean won shed 1.5% and the Thai baht fell 1.4% following an unexpected rate cut by the Bank of Thailand over the weekend.
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