20 ★ Friday 20 March 2020

Henny Sender

Markets Insight

Uberwas headed for its biggest ever
single-day gain afterDara Khosrowshahi,
chief executive, told investors the
company had enough cash to get through
the coronavirus crisis. While minicab-
hailing demand was down 60 per cent to
70 per cent, the worst may have passed
in some areas, and Uber Eats had become
“an important resource”, he said.
Beaten-down consumer sectors gained
after seeking federal aid to withstand the
virus outbreak. Restaurant operators
Shake Shack,Papa John’s andChipotle
rallied after the national industry body
requested $455bn.
Beyond Meatfaded after Bank of
America turned cautious, saying the
meat-substitute maker was more
exposed than peers to the restaurant
trade with more than half of sales coming
from food services.
Harley-Davidsonslipped to its lowest
in a decade after suspending most of its
US production and calling off sponsored
events. The motorcycle maker also
rejected an attempt by 1.2 per cent
shareholder Impala Asset Management, a
critic of former chief executiveMatt
Levatich, to appoint two new directors.
Fordslid after suspending its dividend
and drawing down $15.4bn from two of its
existing credit lines.Bryce Elder

Wall Street Eurozone London

Light makerOsramplunged after

withdrawing profit guidance, which

stoked concerns that its proposed

takeover by chipmaker AMS may fail. The

company said supply-chain disruption

was expected to have a significant impact

on the world economy and the

automotive industry in particular.

“We believe that Osram is the first in

what is likely to be a string of such

announcements from other

semiconductor chip companies in the

coming weeks and months,” said

JPMorgan. It highlighted

STMicroelectronics, Infineon, Melexis and

Sensirion as reliant on autos end markets.

Rochejumped in spite of losing rights

to a dividend after the drugmaker said it

planned to start a final-stage trial of a

potential treatment for severe Covid-

pneumonia. Sector peerMorphoSysrose

on in-line annual results and better than

expected 2020 revenue guidance, which

excluded both coronavirus effects and

any contribution from a cancer drug

scheduled to launch in the second half.

Hugo Bossdropped on a profit

warning, with the fashion label scrapping

its 2020 outlook.Kesko, the Finnish

retailing conglomerate, also withdrew

sales guidance, sending its shares to a

nine-month low.Bryce Elder

Elementismore than doubled after

saying it had negotiated a loosening of

banking covenants. The chemicals maker

also suspended its dividend, which

Berenberg analysts said should bring

debt back to manageable levels. The

broker called Elementis “a classic case of

a good, cash-generative business beset

by temporary headwinds and unfortunate

timing on leverage” that should re-rate

once the “breakneck pace of de-levering”

becomes apparent.

Fund managerM&Gled a FTSE 100

rally after chairmanMichael Evansnearly

doubled his stake with a £50,000 share

purchase. Bank of America had said

earlier in the week that M&G’s valuation

had “detached from reality”, having lost

two-thirds over the past month in spite of

its dividend yield of around 20 per cent

and £1.3bn in holding company cash. “We

do not see any black holes for cash”, the

broker told clients.

Crest Nicholsonled the housebuilders

lower after cancelling its dividend and

withdrawing 2020 guidance.

Pets at Homerose after Peel Hunt

added the stock to its “buy” list, saying its

position as an “essential retailer” and

source of dog food stockpiles “will mean

it leaves the crisis in better shape than it

went in”.Bryce Elder

3 European yields slide after ECB’s
‘whatever it takes’ moment
3 Dollar strengthens to its highest level
since the financial crisis
3 Oil rebounds from multi-decade lows

Stocks wavered between gains and losses
yesterday as central banks ramped up
measures aimed at softening the blow
from the coronavirus.
Italian and Spanish debt rallied a day
after the European Central Bank unveiled
plans to buy an extra €750bn of bonds
and issued a “no limits” commitment to
defend the eurozone.
Following a heavy sell-off earlier this
week stemming in part over doubts about
the sustainability of Italy’s public
finances, the yield on Italian debt fell as
much as 78 basis points, before ending
the day at 1.8 per cent.
“This looks like the ‘whatever it takes’
move that markets have been hoping for,”
said analysts at Morgan Stanley, referring
to the ECB’s latest gambit to calm
investors.
Not to be left out in trying to ease
stress, the Bank of England cut interest
rates by 0.15 percentage points to 0.1 per
cent, the lowest in the central bank’s 325-
year history.
Minutes after the announcement,
sterling rallied against the dollar before
swiftly retreating to $1.16, its weakest
level since the financial crisis.
“Markets remain unconvinced that the

monetary response will be enough to

offset the economic damage the

pandemic will cause,” said Gary

Greenberg, head of global emerging

markets at Federated Hermes.

The Stoxx Europe 600 managed to

close up 2.9 per cent yesterday, although

the continent-wide index is still down

more than 30 per cent for the year.

Across the Atlantic, the dollar

continued to strengthen against other

currencies, prompting the Federal

Reserve to add support to the dollar

funding market. The Dollar index

breached 100 this week to hit its highest

level since 2016 as companies have

begun hoarding the currency.

The S&P 500 was up 0.8 per cent by

midday in New York, having opened 3 per

cent lower in the morning. Meanwhile, the

Nasdaq Composite climbed 2.8 per cent

while the Dow Jones Industrial Average

rose 0.9 per cent.

Oil prices bounced back after sinking to

their lowest level in 17 years. Brent, the

global benchmark, climbed 12.5 per cent

to $28 a barrel while WTI, the US marker,

rose 24 per cent to $25.Ray Douglas

What you need to know

Italian debt rallies after ECB launches bn bond package

-year bond yield ()

Source: Refinitiv











Jan  Mar

The day in the markets

Markets update

US Eurozone Japan UK China Brazil
Stocks S&P 500 Eurofirst 300 Nikkei 225 FTSE100 Shanghai Comp Bovespa
Level 2423.07 1132.57 16552.83 5151.61 2702.13 65996.
% change on day 1.04 3.29 -1.04 1.40 -0.98 -1.
Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $
Level 102.333 1.070 110.060 1.166 7.091 5.
% change on day 1.160 -1.200 1.452 -0.850 0.925 0.
Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond
Yield 1.117 -0.198 0.086 0.719 2.763 8.
Basis point change on day -1.480 4.100 2.360 -7.300 -0.400 54.
World index, CommodsFTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 266.59 28.27 25.42 1498.20 12.42 2308.
% change on day 0.34 7.00 11.15 -2.47 -0.16 -4.
Yesterday's close apart from: Currencies = 16:00 GMT; S&P, Bovespa, All World, Oil = 17:00 GMT; Gold, Silver = London pm fix. Bond data supplied by Tullett Prebon.

Main equity markets

S&P 500 index Eurofirst 300 index FTSE 100 index

||||||| ||||||||| ||||

Jan 2020 Mar

1920

2560

3200

3840

||||||||||||||||||||

Jan 2020 Mar

960

1280

1600

1920

|||||| |||||||| ||||||

Jan 2020 Mar

3840

5120

6400

7680

Biggest movers
% US Eurozone UK

Ups

Dxc Technology 31.

Capri Holdings 25.

Ventas 24.

Welltower 23.

Nvr 22.

Omv 16.

Adp 15.

Solvay 13.

Talanx 13.

Ab Inbev 12.

M&g 34.
Carnival 18.
Tui Ag 18.
Auto Trader 15.
Ashtead 11.
%

Downs

Paychex -10.

Ball -10.

Eversource Energy -9.

American Water Works -8.

Textron -8.

Prices taken at 17:00 GMT

Colruyt -14.

A.p. Moller - Maersk B -9.

Edp -7.

Hugo Boss -7.

Akzo Nobel -6.

Based on the constituents of the FTSE Eurofirst 300 Eurozone

Int Consolidated Airlines S.a. -9.

Glencore -9.

Evraz -8.

Intercontinental Hotels -8.

Segro -7.

All data provided by Morningstar unless otherwise noted.

I

tmay seem strange to argue that

the origin of the coronavirus out-

break — China — is also a good place

for investors to seek refuge from it.

Yet there are reasons to believe

that prospects for mainland markets are

attractive compared with virtually any-

where else, whether in terms of policy,

macroeconomic factors or the strength

of some individual sectors.

Yes, China is being hit hard, and will

continue to be hit. Economists at JPMor-

gan estimated this week that first-

quarter gross domestic product will col-

lapse by almost 50 per cent, on a quar-

ter-on-quarter annualised basis, citing

weak January and February figures for

industrial production, retail sales and

fixed-asset investment.

But among the reasons for relative

bullishness, one of the most important

is the differing responses of policymak-

ers on both sides of the Pacific. The

founder of one Hong Kong-based credit

and macro hedge fund last week

lamented that “central banks in devel-

oped markets will soon have nothing

left”, referring to interest rates rooted

near zero and all manner of quantitative

easing programmes already under way.

“The Fed kept building on the bub-

ble,” the founder said. “Now, we are

close to the end of effective QE and mon-

etary policy.”

By contrast, China appears to have

options. According to Taimur Baig, chief

economist at DBS in Singapore, the

country’s monetary policymakers “look

smart” as “they have kept their powder

dry. Mr Baig noted that the People’s

Bank of China could have flooded all

markets with liquidity to ease all kinds

of strains. But that would not have been

consistent with the “economic impera-

tive” of getting corporate China to rely

less on debt to fund its growth.

Instead, the PBoC has adopted a more

targeted approach, encouraging banks

to lend to the small and medium enter-

prises that support so many jobs. And

while the central bank has cut the

required reserve ratio applied to banks,

it has left deposit rates intact. That

allows households to continue to earn

something on their savings — unlike

consumers in Japan, Europe and the US.

Moreover, precisely because the first

quarter was so horrendous in China, the

second quarter will look much better by

comparison. “If we are right, China will

be first in, first out of a virus-induced

slowdown,” wrote JPMorgan’s econo-

mists, noting recoveries in its daily

trackers of economic activity.

Some of that optimism is reflected in

asset prices, which have been more

resilient than in many markets else-

where. China’s equity benchmark, the

CSI 300, is down about 12 per cent since

the turn of the year, less than half the

drop of the S&P 500 in the US. The ren-

minbi has held reasonably steady

against the dollar, while the bond mar-

kets have been receiving record vol-

umes of inflows from foreign investors.

“It seems unlikely that China is the

solvency black hole in the system,” said

Louis Gave of Gavekal Research.

Meanwhile, normality is returning to

mainland cities.

Zhang Yichen, head of Citic Capital

and a big investor in the chain of

McDonald’s restaurants on the main-

land and in Hong Kong, said consumers

were “still OK. Ninety per cent of our

[restaurants] are open.”

Rebecca Chua, founder of Premia

Partners, an Asia exchange traded funds

specialist, said the economic effects of

the viral outbreak had not been felt fully

in many parts of the world. But in China,

she said, “we are seeing surprises on the

positive side”. One of those is what Ms

Chua called the “accelerating digitalisa-

tion” of the economy, caused in part by

lockdowns. With many schools closed,

Alibaba’s Ding Ding — a free communi-

cations platform, known as DingTalk

outside the mainland — has seen surges

in volume as most education moved

online. Many companies have put their

entire staff on Tencent’s WeChat Enter-

prise, sharing documents and taking

advantage of its Zoom-like features for

communication in a virtual world.

On Wednesday, as Tencent reported

fourth-quarter earnings, it said 1.16bn

user accounts had logged in at least once

in December across its Weixin and

WeChat platforms, up 6 per cent on a

year earlier. “It is not just that there is

more traffic,” Ms Chua added. “The

behavioural change is huge.”

And underpinning all this is a deep,

structural shift. Since China joined the

World Trade Organization almost 20

years ago, demand from the country has

lifted the fortunes of the rest of the

world. After the 2007-09 financial cri-

sis, too, stimulus-fuelled demand from

China helped propel the world’s recov-

ery. Now, though, as China turns from

being a capital exporter to importer,

that is likely to change. “There is no glo-

bal co-ordination,” said the hedge fund

manager. “China has no incentive to bail

out the rest of the world this time.”

[email protected]

China is an odd but

effective refuge from

the coronavirus crisis

One positive surprise is

‘accelerating digitalisation’

of the economy, caused in

part by lockdowns

MARCH 20 2020 Section:Markets Time: 19/3/2020 - 18: 37 User: alistair.fraser Page Name: MARKETS2, Part,Page,Edition: EUR, 20, 1