Risk Remains Wobbly
Markets will have a lot to tussle with over the week ahead, so there has been less demand for equities in Asia today as traders don't want to run to far ahead of the economic realities as caution is the most notable pattern.
The easing of the lockdown in Wuhan, the epicenter of the coronavirus outbreak, has sent a very positive signal to the world that China's measures have been effective in containing the virus and domestic activities are slowly returning to normal. But the US is still in the acceleration phase of the infection spread, and the UK case curve is steep but easing. Now the most imminent challenge facing policymakers is a workable exit strategy that will prevent long-lasting global economic depredation.
White House is moving to reopen the US economy as early as May 1. Still, top officials have no solid plan that will allow Americans to resume work out of harm's way as the coronavirus pandemic rages. The markets don't like this rush to judgment one bit, especially considering that Singapore, an "example of excellence," in healthcare and disease prevention were forced into lockdown last week, raising concerns globally about how hard it is to contain the pandemic.
Oil markets pivot to price discovery
The oil deal facilitated by President Trump and agreed on by Saudi Arabia and Russia is now behind us, although 300k light on account of Mexico's resistance. Traders can move on to the more arduous and trickier task of price discovery. It's a hefty cut, but at the end of the day, it is going to fall well short of what needed to counter the substantial drop in April demand, even more so if the relaxing of social distancing rules are scaled back to May or even June.
While the production deal eases a huge supply tail risk, the considerable demand tail could ultimately prove to be a short term rebound stifler. It is suggesting there's a higher chance of a moderate selloff than a push through WTI $28 this week, although traders are keeping an open mind while watching the corona curve flattening propensities.
China policy
Beijing appears more than ever committed to challenging the economic headwinds after China's leadership has reaffirmed that China will 'strive to' - vs. 'try to' earlier - minimize the bleak impact of the outbreak and ensure this year's economic goal is achieved, including doubling the 2010 GDP. With President Xi focusing on delivering the economic targets, markets are moving to price in more accommodative policies that should be rolled out soon to support growth. Expect the People's Bank of China to cut the 1y MLF rate and 1y LPR by 20bp and the TMLF rate by 20bp-35bp later this month.