Summary: Following the first sustained 2-day bounce since the COVID-19 panic reared its head, sentiment is fading as fatality rates climb in the US.
A mixed day for risk across Asia today, Australia leading the pack with the ASX200 +2.33%, KOSPI -1.1%, Hang Seng +0.76%, Shanghai -0.60%, Nikkei -4.3 at the time of writing.
Sentiment is waning throughout the Asia session, even as the US rescue package makes passage through senate. A sense of buy the rumour, sell the fact, as market participants await the US jobless claims data tonight for a read through on the impact on the real economy. Also hampering sentiment is the markets continued focus on the COVID-19 outbreak and its effects on economic activity, at the current rate, the US will overtake Italy in number of coronavirus cases on Thursday and China on Friday. The US is still early on in the infection curve, and the recent rally in risk sentiment is at odds with this outlook. Markets will not stabilise without the spread of the pandemic slowing with an eye to lockdowns being lifted. The key being, we do not know the scale of problem so do not know if enough has been done to arrest downside.
In terms of COVID-19 we are just entering the first critical phase of the outbreak in the US and it is clear by now the markets are not just looking for stimulus measures, monetary and fiscal, to relieve the pressure on risk assets, the more pressing matter is the containment of the virus itself. Stimulus packages quell downside and they prime markets for stabilisation, but are not a cure all. There is a real disconnect between the real picture which is cascading unemployment, bankruptcy headlines and a true “bottom” in equities. Therefore, we are sceptical of a lasting relief rally until contagion is under control, transmission rates reduced and infection curve flattened.
Jobless claims tonight – we know it is going to be bad, but the consensus estimate is likely too low. In the US 70% jobs are in private sector services; economic activity, particularly the services sector, has experienced a cliff edge decline as lockdowns are enacted. California according to media claims reportedly had 1mn unemployment filings so far this month and New York 1.7mn calls to state unemployment offices. Combined state local media reports and google search trends indicate the consensus 1.5mn is far too low, it could feasibly be double. Whatever the number, it will be a key read on the demand collapse and the notion that this crisis will outpace the GFC in terms of the effects on economic activity.
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)
