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2020-04-20

Asia shares to precautionary start, U.S. crude slides

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Caution gripped Asian share businesses on Monday over expectations a busy week of corporate earnings reports and economic data will drive home the damage caused by the worldwide virus lockdown, while U.S. crude prices got an early spill.

Japan reported a decline of nearly 12 percent from a year earlier in March, with shipments to the United States declining by more than 16 percent. Globally, early readings on manufacturing in April are due Thursday and recession-like readings are expected to show.

MSCI's broadest Asia-Pacific share index outside Japan. MIAPJ0000PUS eased 0.2 percent in slow early trading, with a pause after five straight weeks of gains needed. Japan's Nikkei. N225 fell 1.3%, while South Korea fell 1.KS11 0.1%.

E-Mini futures slipped by 0.7 percent for the S&P 500 ESc1, having jumped on hopes some U.S. states would soon start reopening their economies last week.

A.S. Sunday, President Donald Trump said Republicans were "close" to getting a deal with Democrats on a small business support package.

And the U.S. Centers for Disease Control and Prevention reported an increase in new infections of 29,916 and stated that the number of deaths had increased by 1,759 to 37,202.

Thanks in part to the Federal Reserve's extreme easing steps, the S&P 500.SPX has still rallied 30 per cent from its low in March. Alone, the Fed has bought nearly $1.3 trillion of Treasuries, and many trillions of non-sovereign debt it historically would never have come close.

"In the coming months, the Fed will be a major buyer of risky assets and has shown its willingness to back up virtually any part of the troubled domestic financial system," said Oliver Jones, a senior Capital Economics market economist.

Yet the S&P 500's particular composition was also a major factor, he added, since three sectors that are relatively resilient to a virus-induced lockdown - IT, communications services and healthcare - make up about 50 percent of the index.

Indeed, the index accounts for more than one-fifth of Microsoft, Apple, Amazon, Alphabet and Facebook.

"Moreover, the S&P 500 is skewed towards a couple of ultra-large firms, some of which are in those sectors too. Their sheer size could make them better able to weather a few months of dramatically lower revenues than most. "Consequently, the rebound in the S&P 500 probably overstated optimism on the economy, Jones argued, noting that European benchmark equity indexes and U.S. small cap indexes were still in bear market.

Bond markets suggested investors were expecting tough economic times ahead with yields on US 10-year treasury US10YT = RR steady at 0.65% from 1.91% at the beginning of the year.

That decline has shrunk the yield advantage of the U.S. dollar over its peers and, in recent weeks, has left it rangebound. The dollar index = USD wandered between 98.813 and 100.940 in April so far, and was last at 99.791.

On Monday the dollar was a fraction firmer on the yen at 107.63 JPY= but again well within recent ranges, while the euro was idling at $1.0868 EUR=.

Last week, Gold had recovered to $1,676 per ounce XAU=, reaching a peak of $1,746.50 7-1/2.

Oil prices remained under pressure as demand for fuel evaporated from the global lockdown, leaving so much extra supply countries finding it difficult to find space to store it.

So great was the near-term glut that the U.S. crude May futures contract traded down 7 per cent at $16.96 a barrel CLc1, while June stood at $24.28 CLc2.

Brent crude LCOc1 futures have already rolled over into June and that contract was $27.75 a barrel off 32 cents.

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