A file photo shows a man watching the Stock Exchange (Tadawul) bourse in the Saudi capital Riyadh. Markets in the Gulf have dropped after US oil prices slumped to historic lows. Gulf states depend on oil income for most of their public revenue. Photo: Fayez Nureldine / AFP

Asian markets are defensive this morning as oil prices retreated and investors turned watchful ahead of key central bank meetings and earnings announcements.

The focus is increasingly on the normalizing of business activity and reopening of economies as the growth of new infection cases and fatalities have declined in many countries. The coronavirus pandemic has now infected over 3 million people and killed more than 211,000 around the world.

“Central bank policy has moved from mostly alleviating the dysfunction of market pricing and tightening of financial conditions to ensuring credit flows to businesses and local governments,” BlackRock Investment said in a note.

“The Federal Reserve built on its ‘whatever it takes’ approach to helping the economy through the coronavirus shock and ensuring markets function properly. We could see its balance sheet more than double to $11 trillion by year end … Some actions are raising questions about whether they may undermine the independence of central banks.”

Next up, the European Central Bank will set its policy on Thursday and markets will be keen to see if there is a further pledge to raise its asset purchase programme after it agreed last week to accept junk bonds as collateral for bank loans.

The Federal Reserve meeting is scheduled for April 28-29 and although it is not expected to move on interest rates, financial markets will look for clues about how long rates will remain at these low levels and related asset purchase programmes.

The Nikkei 225 is down 0.62%, the Korean Kospi benchmark is flat and the ASX 200 has retreated 0.5% as WTI prices are down 15% and Brent futures are off 6.4%. Regionally, the MSCI Asia Pacific benchmark has dropped 0.54%.

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Oil prices still volatile

“While oil prices are still trading in a very volatile manner, investors, similar to people, appear to want to be willing to come out of hibernation this morning,” said Khiem Do, Barings’ Head of Greater China Investments.

He said that government attitude towards reopening has been “emboldened by the fact that, over the past few days, as the rate of growth of new infections and fatalities has visibly declined, their psychological urge to ‘rebuild economic safety’ and ‘rescue businesses from bankruptcy’ appears to be much stronger than ‘respecting strict containment measures to safeguard one’s life’.” 

Credit markets are firm with the Asia IG index narrowing by 2 basis points to 118/120 bps, with Philippines sovereign CDS an under-performer widening by 4 bps to 85/92 bps after the country issued a two-tranche dollar bond.

Hutama Karya expects to price by next week a long-dated bond with 100% Indonesian sovereign guarantee, while Wharf Real Estate issued price guidance for a two-tranche offering to price today, and AMTD International announced terms of a bond exchange scheme.

Overnight, Korea East West Power received over $3.85 billion for a 5-year dollar bond and the Philippines’ dual tranche offering received over $9 billion in aggregate. 

This story appeared first on Asia Times Financial