Asia: Equities, crude cautiously higher but capped by virus uncertainty

[HONG KONG] Asian markets saw tentative gains on Thursday as oil markets stabilised after days of wild gyrations but investors continued to fret over the uncertain economic outlook, despite the virus pandemic showing signs of slowing.

With devastation wrought on economies around the world, some governments are turning their attention to easing tough restrictions that have been imposed on billions of people for the past few weeks.

But with more than 180,000 people dead and nearly 2.6 million infected, observers say the route out of the crisis remains uncertain.

And the head of the World Health Organization warned the end was still a long way off.

"Make no mistake: we have a long way to go. This virus will be with us for a long time," Tedros Adhanom Ghebreyesus told a virtual press conference.

Wall Street enjoyed a much-needed rally on Wednesday, tracking a surge in oil prices that saw WTI for June delivery jump 19 percent.

Analysts pointed to an edict from President Trump for US forces to destroy any Iranian gunboats harassing US military ships in the Middle East, as they reportedly have been in recent days.

Still, with demand for the commodity almost non-existent and stockpile facilities close to full, expectations are for more pain to come for the oil markets and equities.

Hong Kong was up 0.3 per cent, Sydney added 0.5 per cent and Seoul rose 0.8 per cent, while Tokyo went into the break 0.7 per cent higher.

Taipei added 0.6 per cent and Manila was more than one per cent up with New Zealand gaining 0.8 per cent. Shanghai was marginally higher.

Both main oil contracts were up around three per cent.

However, the gains were shallower than in earlier trade as investors struggle to maintain their confidence.

Global markets had been enjoying a healthy rally in recent weeks, thanks to trillions of dollars of stimulus and signs of slowing in the disease that had allowed leaders to consider easing lockdowns.

ARDUOUS ROAD TO RECOVERY

But a rout in the oil market this week - which saw WTI for May delivery crash below US$0.00 - and concerns about the length of recovery have brought dealers back to Earth.

"The broader market's attention is now turning away from the trajectory of epidemiological curves and towards exit strategies," said Stephen Innes at AxiCorp.

But he added that "the big issue here is given overwhelming public support for hard lockdowns, and relatively elevated risk perception levels of the danger of the virus, it will make it difficult for the government politically to exit the lockdown without reliable test and trace capability".

He also pointed to China, which is emerging from months of lockdown but is struggling to kickstart the key consumer sector.

"The differential between the sharp recovery in factory activity and retail sales is glaring. While the factories are coming back online, it does not force people to buy things.

"Without a cure or a reliable treatment, the road to recovery could be longer and more arduous than initially thought, based on the China template."

In a sign of the battle ahead for governments, a gauge of Japan's services sector on Thursday came in at a record low for April and pointed to a deep contraction, while a measure of factory activity dropped to its lowest since the financial crisis 11 years ago.

Eyes are on a meeting of EU leaders later in the day, where they will try to hammer out a plan to help their withered economies recover from the crisis.

However, while the 27 members agree that a stimulus running into hundreds of billions of euros will be needed, they are split over the details - particularly how it should be funded.

"It's hard to overestimate the importance of (the) meeting... as it could define the post-Covid strategy of the alliance," said Gorilla Trades strategist Ken Berman.

"Compared to the US stimulus, the European response was muted, and the financially weak countries of the EU are not in the position to support their economies.

"Barring a coordinated response to the crisis, countries like Italy could face a full-blown banking crisis."

AFP