The long road to new normal   

15 May 2020

Markets are taking stock of their exposure to risk while mulling the protracted and arduous recovery that awaits the global economy. Asian stocks and US equity futures erased earlier losses and are set to enter the last trading day of the week on a slightly positive note, although most Asian currencies are currently weaker against the US Dollar and the Japanese Yen.

China, the first major economy to emerge from the Covid-19 induced lockdown, posted a better-than-expected 3.9 percent expansion in April’s industrial production data. But its retail sales disappointed market estimates, while fixed-asset and property investments still showed year-on-year contractions. The surveyed jobless rate also increased to six percent in April, 10 basis points higher than the month prior.

China is widely seen as the bellwether for navigating a post-lockdown world. Despite its supply-side forces faring better at present compared to demand-side indicators, it’s evident that China is only managing to tip-toe out of the lockdown gates as opposed to racing out of the blocks, even if the data does point to signs of recovery. However, the increasingly diversified economy, coupled with expectations for more stimulus measures, should help buffer the country’s growth momentum over what is set to be a gradual, yet highly uncertain journey ahead.

There remains the risk of a negtive feedback loop into the Chinese economy from the crippled demand in major Western economies, with the US alone accounting for almost 17 percent of China’s exports in 2019. Global investors will also be gauging the US economic data due later today, including its April retail sales and industrial production prints. As the US weekly jobless claims continue to number in the millions, the hobbled demand in some of China’s biggest markets is set to dampen its growth for the year.

Overall, the data out of the two largest economies should quell any notion of a V-shaped recovery for the rest of the world, much to the chagrin of stock market bulls. The coming months remain paved with downside risks and the threat of chilling US-China relations amid this global pandemic will only further inhibit global risk appetite.

Reporting for EasyKobo on Friday , 15 May 2020 in Lagos, Nigeria

Source: Han Tan, Market Analyst at FXTM

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