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Asia stocks get China trade relief, U.S. bonds face debt deluge

Published 05/06/2020, 08:03 PM
Updated 05/07/2020, 01:45 AM
© Reuters. Pedestrian wearing a face mask rides an escalator near an overpass with an electronic board showing stock information in Shanghai

By Wayne Cole

SYDNEY (Reuters) - Asian shares pared early losses on Thursday after Chinese exports proved far stronger than even bulls had imagined, while U.S. bond investors were still daunted by the staggering amount of new debt set to be sold in coming weeks.

Beijing reported exports rose 3.5% in April on a year earlier, completely confounding expectations of a 15.1% fall and outweighing a 14.2% drop in imports.

The surprise stoked speculation the Asian giant could recover from its coronavirus lockdown quicker than first thought and support global growth in the process.

The news helped some regional markets steady after a shaky start with both Japan's Nikkei (N225) and South Korea (KS11) back to flat.

MSCI (NYSE:MSCI)'s broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) eased 0.4%, led by a 0.3% dip in Chinese blue chips (CSI300).

E-Mini futures for the S&P 500 (ESc1) fared better with a bounce of 0.5%, while EUROSTOXX 50 futures (STXEc1) and FTSE futures (FFIc1) both firmed 0.2%.

Markets had started cautiously with renewed Sino-U.S. tensions lurking in the background.

U.S. President Donald Trump said he would be able to report in about a week or two whether China is meeting its obligations under a trade deal, as Washington weighed punitive action against Beijing over its handling of the coronavirus outbreak.

The flow of economic data also remained grim, with U.S. private employers laying off 20 million workers in April.

Figures due later on Thursday are forecast to show initial jobless claims rose a further 3 million last week, while Friday's payrolls report is expected to see 22 million jobs lost and unemployment hit 16% or higher.

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On Wall Street, energy and utility sectors were the main losers while demand for techs kept the Nasdaq in the black.

The Dow (DJI) had ended down 0.91% and the S&P 500 (SPX) 0.70%, while the Nasdaq (IXIC) added 0.51%.

WORLD'S BIGGEST BORROWER

Bond markets saw one of the largest shifts in a while after the U.S. Treasury said it would borrow an astonishing $2.999 trillion during the June quarter, five times larger than the previous single-quarter record.

It will sell $96 billion next week alone and a surprising amount of that will be at longer tenors, which in turn pushed up long-term yields and steepened the curve.

Yields on 30-year bonds (US30YT=RR) jumped 7 basis points to 1.40%, the largest daily increase since mid-March.

That rise gave a lift to the U.S. dollar on most currencies and its index firmed to 100.192 (=USD). The euro eased to $1.0800 (EUR=), hurt in part by a gloomy economic outlook from the European Commission.

Indeed, the single currency sank to its lowest against the Japanese yen since late 2016 at 114.40 (EURJPY=), and even the dollar touched a seven-week trough at 105.98 yen

"There's a lot to like about the yen these days," said Deutsche Bank (DE:DBKGn)'s global head of G10 FX Alan Ruskin.

He noted that with rates across the globe falling to all time lows, the yen no longer had a large yield disadvantage.

"Across all of 3m, 2y, 5y and long-end tenors, the average spread between yen rates and the average of G10 yields are at lows not seen for at least the last three decades," he said.

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The yen was also cheap by many measures, he argued, with fair value put at around 85 per dollar.

In commodity markets, gold eased on expectations that supplies will grow as bullion refineries resume operations. The metal was last up 0.3% at $1,691.54 an ounce

Oil prices inched higher after a six-session streak of gains which saw Brent almost double since hitting a 21-year low in April.

Brent crude (LCOc1) futures were last up 21 cents at $29.93 a barrel, while U.S. crude (CLc1) rose 12 cents to $24.11.

Latest comments

Too good to be true. CCP has been lied to its people and the world for 70 years. Chinese compnies do the same way. All provinces in China pump water to GDP.
Borrowing $3Trillion at higher interest rates is good news?  Where did China sell its junk?  As we enter the late spring with a real possibility of spike in virus cases and head toward fall with Dr. Fauci virtually assuring us of a 2nd wave, who is buying stock?  Not Buffett, not me, not you.  I admit I have more questions than answers. - I guess I am just crazy but I still think you will see the gold/S&P ratio hit 1 somewhere around $1900 in the next few months.  Maybe this bounce is just traders kicking the price around but I sure don't see the value here or for that matter anytime in the next 3 years.  I know from years of trading that the market is not always rational but forward P/Es of around 40 with 30,000,000 unemployed and months if not years of reduced economic activity and piles of debt ... well that is just pushing irrationality a little too far.
can we trust the numbers coming out of China.
does it matter? they are the numbers given, so they are the numbers used to drive markets. They are true unless you can prove they are wrong.
China is the growth engine of the world, especially during shutdowns. Chinese are immune to covid19.
"Chinese are immune to covid19." ---- this gave me a laugh, thanks
beside that the Economy of USA was really  BAD. cause the stock market was not doing so good at all losing a lot points and money too people investing money on it.
sure China never lies about anything
U.S. pump the market with Fed money printing and China pump the market with fake numbers. Well...you gotta find a way to pump these days.
Fed has become a naked cabre dancer
Sure US never lies about anything
Reports confirms that supply chain is not broke. China supplies and USA consumes. China wins again!!
USA ain't consuming, and China is lying as always
Whoever told Dr Donny to wear those really dorky goggles yesterday instead of a mask should be fired.....his initials are Mark Meadows.
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