April 14, 2020
Risk on flows return
Chinese Trade data beats
Nikkei 3.13% Dax 1.05%
UST 10Y 0.75%
Asia and the EU
CNY Trade 19.9B vs. 18B
North America Open
Boosted by better than expected Chinese trade data, global markets were generally higher today with futures up by more than 1% going into North American trade.
Chinese trade data printed at 19.96B versus 20.0B which was a slight miss actually but the markets traded higher nevertheless on relief that the numbers were not worse. Given the fact that much of the country was in lockdown that month the markets took last night’s report as the worst-case data point assuming that growth will resume going forward.
China is now the template for the rest of the world for how economies recover from the COVID-19 shock and any encouraging signs there will be quickly extrapolated to the OECD most of which remains under lockdown until the end of the month at the earliest.
Still, investor sentiment may be far too optimistic with respect to the global economy. Most of the analysts are asking – “When will the economies return back to work?” – which we believe is the wrong question. The much more relevant question is – “When will aggregate demand recover to pre-virus levels?” That is a much more difficult dilemma to assess given the massive damage done to consumer balance sheets.
Interestingly enough neither USDJPY or USDCHF are responding to the risk-on rally tonight suggesting that currency markets remain more cautious than equity participants. With no data on the docket, today trading may remain choppy into the North American session, although if New York state figures show another reduction in case counts and deaths the risk-on sentiment may extend on the hope that the global epicenter of COVID-19 infections may have peaked.