June 17, 2020: Asian investors moved cautiously Wednesday as they weighed fresh signs the world economy is in recovery against fears of a second virus wave, geopolitical tensions and profit-taking.
Federal Reserve and Bank of Japan pledges of more support troubled businesses, and reports of a new trillion-dollar US stimulus sent regional markets soaring Tuesday as they helped traders look past a worrying increase in infections from Tokyo to Beijing to Texas.
Optimism about the world's top economy was given an extra boost by data showing retail sales, crucial to any recovery, soared a forecast-busting 17.7 percent in May. That came after figures showed a surprise jump in jobs last month.
Meanwhile, an Oxford University study showed that steroid dexamethasone could cut the risk of death for people on ventilators by almost a third.
Still, Fed chief Jerome Powell, whose sobering summary of the outlook for the economy last week sparked a plunge across equities, warned in congressional testimony Tuesday that the recovery would take some time.
While some recent indicators have been favourable, he told lawmakers there was “significant uncertainty” about the outlook and unless consumers feel confident COVID-19 has been defeated, “a full recovery is unlikely”.
He added that the April-June quarter “is likely to be the most severe on record”.
Asian markets fluctuated through the morning with profit-takers also cashing in after Tuesday's big run-up. Hong Kong was up 0.2 percent and Tokyo went into the break 0.7 percent lower a day after a near-five percent surge.
Shanghai, Sydney and Singapore edged down 0.1 percent with Seoul 0.2 percent off. Manila and Jakarta were up almost one percent while Wellington jumped more than two percent.
– 'So much uncertainty' –
But observers warned there could be a pull-back after a massive surge in valuations from their March troughs, fed by government and central bank support as well as the easing of lockdowns.
“There is so much uncertainty right now and it looks to us like the market has really gotten ahead of itself, and that concerns us,” Sandi Bragar, at Aspiriant LLC, told Bloomberg TV.
“We are in the early stages of this and we are concerned the recovery is going to be long and slow.”
The major threat to any rebound is a renewed surge of infections, which could slow the easing of restrictions and reopening of economies.
Eyes are firmly on Beijing, which on Wednesday cancelled more than 1,200 scheduled flights, having already urged residents not to leave the city and closed schools again as authorities scramble to contain a “severe” new outbreak in the city of 21 million people.
The coronavirus resurgence — believed to have started in the capital's sprawling Xinfadi wholesale food market — has prompted alarm as China had largely brought its outbreak under control through mass testing and tough lockdowns.
Spikes in Tokyo, which recently lifted a state of emergency, and populous Florida and Texas have added to the concerns.
Investors are also tracking developments on the Korean peninsula after the North blew up an inter-Korean liaison office on its side of the border Tuesday, following days of virulent rhetoric from Pyongyang.
On the same day, at least 20 Indian soldiers were killed in a “face-off” with Chinese troops on a disputed border, the first deadly encounter between the nuclear-armed nations in almost half a century.
– Key figures around 0230 GMT –
Tokyo – Nikkei 225: DOWN 0.7 percent at 21,414.50 (break)
Hong Kong – Hang Seng: UP 0.2 percent at 24,399.33
Shanghai – Composite: DOWN 0.1 percent at 2,929.30
West Texas Intermediate: DOWN 2.0 percent at $37.62 per barrel
Brent North Sea crude: DOWN 1.5 percent at $40.34 per barrel
Euro/dollar: UP at $1.1266 from $1.1263 at 2100 GMT
Dollar/yen: DOWN at 107.22 yen from 107.31 yen
Pound/dollar: DOWN at $1.2556 from $1.2570
Euro/pound: UP at 89.73 from 89.57 pence
New York – Dow: UP 2.0 percent at 26,289.98 (close)
London – FTSE 100: UP 2.9 percent at 6,242.79 (close)