LCG Market Wrap: China exports, lifting restrictions, SoftBank & Gold 7-year high
Markets are restarting after a long Easter weekend with a positive tone. Things have moved on from when there was so much bad news that the weekend was to be avoided at all cost. European shares look set for a positive open as more nations including Spain ease lockdown restrictions. Wall Street finished down but well off lows of the day as Netflix shares saw the Nasdaq finish higher.
Asian shares got a lift from a smaller than expected fall in Chinese exports. Dollar-denominated exports fell 6.6% year-on-year, less than half the -14% drop expected. The data coming out of China (that suffered the fallout from the virus first) is rough leading indicator for the rest of the world. The smaller exports drop is a clue China’s Q1 growth figures released on Friday could also surprise on the topside.
FTSE set to open 79 points higher at 5921
DAX set to open 181 points higher at 10,745
S&P 500 to open 47 points higher at 2808
Softbank to lose billions
A “deteriorating market environment” will lead to a massive $16.7 billion loss at tech investing fund Softbank. The fund jointly created with Saudi Arabia’s public investment fund called the ‘Vision fund’ is where the losses will be felt. Some high profile tech investments that have hit problems during the coronavirus lockdown.
The problems go deeper at SoftBank though. The company has huge debts that have only been tolerated because of large paper profits in some big loss-making companies like Uber and WeWork. The plan was to convert those paper profits into real ones by taking those companies public. But the WeWork IPO fiasco as well as the tumble weeds floating through the current new listings market will mean investors no longer have that profitable exit point. If markets hit turbulence again, or even if they don’t – investors might choose to pull funds out of Softbank, even at a loss. SoftBank could be another market shock away from a viscous circle of redemptions.
Spain lifting coronavirus restrictions
We are approaching two million coronavirus cases globally. But while the number of cases has doubled in two weeks, the countries that are seeing a slower rate of growth are trying to reopen economies before permanent damage is done. Spain allowed approximately 300,000 ‘nonessential’ workers back to work in the Madrid region on Monday in an effort to lift lockdown restrictions.
They are mostly from construction and manufacturing. It looks like services and tourism will be the last to go back to work. The trouble is in a country like Spain that those are some of the biggest contributors to GDP. Tourism is of course cyclical and if restrictions last too long, Summer bookings will just never materialise. We suspect another big tourism-specific bailout would need to happen in that instance.
Gold 7 year high
It has been a steadier rise to 7-year highs this time around. While all the focus has been on oil market volatility, gold has been staging an impressive rally. Gold’s strength flies in the face of the usual explanation of its haven status because it has coincided with a recovery in stock markets. For us, the common denominator is the – at last count – nine new programs introduced by the Federal Reserve. More dollars swirling around in the system have devalued the dollar and pushed up the value of dollar-denominated assets like gold. So far, the more dollars available have caused investors to worry less about dollar funding pressures and put money to work in markets.