US President Donald Trump and Vice President Mike Pence watch a TV clip of New York state Gov. Andrew Cuomo at the daily coronavirus briefing at the White House on April 19, 2020. New York state will begin COVID-19 antibody testing campaign this week even as some states begin to loosen restrictions amid pressure to restart the economy. Tasos Katopodis/ Getty / AFP

Economic events

Financial markets will monitor the pace of economies reopening across the world with corporate earnings visibility influencing bottom-up analysis as the results season unfolds.  

“It’ll be more interesting what the executives are saying on their conference calls versus their actual earnings. Investors are already looking to 2021 and beyond,” Ramp Capital said in a note.

Although the early results have been dismal, with Goldman Sachs, Citigroup and BofA Securities reporting a 40-50% profit drop, investors have been dissuaded from a sell-off by the Fed’s $2.3-trillion vow of support and an expectation that the fog over earnings outlook will clear and provide additional respite.

“Logically, equity markets should correct now as earnings begin to get reported and companies are forced to issue guidance. Still they will correct less than otherwise would be the case if it was not for the Fed’s extraordinary eagerness to buy other people’s debt,” Christopher Wood, strategist at Jefferies & Co, said.

Earlier this month, the US Federal Reserve took the unprecedented decision to provide up to $2.3 trillion to support the economy by buying up loans and bonds.

“If the market believes the Fed will ultimately backstop everyone, that is a reason to be turning more offensive on a correction during the now commenced earnings season. Still no one should doubt that the Fed’s actions are interfering with the capital allocation process,” Jefferies’ Wood said.

At Wall Street, S&P 500 companies’ profits are expected to drop by 12.8%, and earnings are expected to fall 13.6% in 2020 before rebounding 22.8% in 2021, according to Refinitiv.

Investors will also await key events like China’s rate decision, Australia’s central bank minutes, Zew survey results in Europe and PMI readings from several major economies.

Barclays expects the PBOC to guide the loan prime rate lower by 20 basis points on Monday, on the heels of the cut in the medium loan facility rate last week, amid worries that the decline in per capita income, worsening unemployment rate and a high number of closures would inflict a severe hit to demand.

Fund flows

Bond funds saw their streak of weekly outflows come to an end as investors piled into Municipal, Emerging Markets and Total Return Bond Funds, according to fund tracker EPFR.

EM High Yield Funds took in fresh money for the third week running, flows into EM Investment Grade Corporate Funds hit a seven-week high and Frontier Markets Bond Funds snapped a five-week outflow streak, it said.

“The key driver behind these inflows is the hope that recent numbers for the COVID-19 pandemic indicate the infection rate is at – or close to – peaking in several major markets including the US,” a report from EPFR, a fund flow data compiler, said.

EM bond funds recorded the first week of inflows since end-February, primarily driven by the hard-currency space, while EM equity funds continue to see small outflows, Barclays said in a note.

“Poorer countries are set to benefit from debt-service relief efforts from the international public sector, but with market access strained for lower-quality, middle-income sovereigns, these may remain the weak links. In contrast, IG-rated sovereigns, despite headwinds to their fundamental outlooks, are experiencing tailwinds from improving conditions in DM IG markets and global central banks’ liquidity injections over the past weeks,” Barclays analysts said.

BofA Securities noted in a report that risk-assets flows trends have improved across the board with high-yield funds recording their largest inflow ever, after the Fed’s decision to add fallen angels to their QE program. It said that high-grade funds posted stronger flows over the previous week and EM debt funds recorded their first inflow since the start of the Covid-19 crisis while equities posted a marginal outflow, highlighting the dim growth outlook in Europe.

Economic data calendar

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