Tuesday, April 7, 2020

Japan Stocks Gain Despite Looming Emergency

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What’s happening: Stocks in Japan surged in morning trade on expectations of a slowdown in the spread of coronavirus.

What happened: Japanese stocks climbed for the second consecutive day this week, even as the country is preparing to impose a state of emergency in some major regions due to the rise in daily coronavirus cases.

Why it matters: The Japanese government is gearing up to impose a state of emergency in the capital Tokyo and six other regions to help control the spread of the coronavirus pandemic. The declaration, which will cover Saitama, Kanagawa, Chiba, Hyogo, Osaka and Fukuoka, is expected to last for around a month.

An emergency will give state governors the power to issue stay-at-home orders to individuals and call for businesses to close. However, Japanese law doesn’t specify any punishment for ignoring the orders, which is why the enforcement will likely rely on voluntary compliance and not be as rigorous as the lockdowns in most countries. Tokyo has already requested people refrain from nonessential travel, and the request has resulted in lower movement.

The order from Prime Minister Shinzo Abe is expected to be announced today, and will go into effect on Wednesday, as the number of cases in Japan has climbed in recent days. Domestic infections have exceeded 4,000, with around 93 fatalities reported. Despite this not being a huge outbreak in comparison with some major countries, the numbers are rising particularly in Tokyo, which has confirmed over 1,000 cases.

Stocks are likely to have gained on PM Abe’s announcement of a stimulus package worth around 108 trillion yen. The package is likely to include 6 trillion yen for cash payments to families and small businesses.

Japan’s Nikkei 225 had gained 2.4% in morning trade today, with shares of index heavyweight Softbank Group climbing over 4%. The Topix index also rose 2.3% in early trade. The Japanese yen was trading at 108.93 versus the US dollar, after falling below 108 last week.

In economic news, Japan's household spending declined 0.3% year-over-year in February, after declining 3.9% in the previous month. The country’s nominal cash earnings rose 1% in February.

What to watch: The market will be keeping an eye on announcements from the country’s Prime Minister related to the stimulus package. Investors also await economic reports on leading economic index and coincident index, scheduled for release later in the day.

The Markets Today

     

European stocks will be in focus today, with the markets closing higher on possible signs of the coronavirus spread slowing in the region.

Context: European stocks closed sharply higher in the previous session as the US reported a decline in the growth rate of new COVID-19 cases over the weekend. The death rate also fell in both Italy and Spain.

Details: The earlier epicenter of Europe’s pandemic, Italy, reported its lowest daily coronavirus deaths in over two weeks on Sunday. The country that now has the highest number of cases is Spain, which also reported a decline in the rate of new cases and deaths.

The pan-European Stoxx 600 index jumped 3.75% on Monday, with all sectors closing in the positive territory. The FTSE 100 rose 3.1%, German 30 spiked 5.8% and French 40 rose 4.6%.

Shares of British firm G4S jumped over 15% on Monday, recovering from a record single-day loss on Friday. Shares of Rolls-Royce also gained more than 14% after the company halted its dividend and reported a new credit line of £1.5 billion.

Coronavirus is seen to continue dominating the global market sentiment. Total COVID-19 cases in Spain exceeded 136,600, with 13,300 deaths. Italy has confirmed over 132,500 cases and 16,500 fatalities.

What to watch: The market will be looking for some positive outcome from the Eurozone meeting scheduled for later in the day to forge a deal to combat the coronavirus-induced economic crisis. Investors also await the release of some economic reports from the European nations, including Germany’s industrial production, France’s balance of trade and current account, Italy’s retail sales and UK’s house price index and labour productivity.

Other Markets: US indices closed higher on Monday, with the Dow, S&P 500 and Nasdaq 100 up 7.73%, 7.03% and 7.33%, respectively.

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South Africa’s foreign exchange reserves, China's foreign exchange reserves, Mexico’s inflation rate, Russia’s total vehicle sales and foreign exchange reserves, Brazil’s retail sales, Canada’s business confidence as well as the US Redbook index, job openings and IBD/TIPP economic optimism index.