July 13, 2020 / 8:20 AM / a month ago

Daily Briefing: The Pollyanna syndrome

It's a big week – central bank meetings in Japan, the euro zone, Canada and several emerging markets; the July 17-18 European Council summit that may determine the fate of a proposed EU recovery fund; and more than 30 S&P 500 companies and over 50 from Europe's STOXX 600 reporting second-quarter earnings.

FILE PHOTO: A man wearing a protective mask walks past the headquarters of the Bank of Japan in Tokyo, May 22, 2020.REUTERS/Kim Kyung-Hoon

There's also the usual rash of data – from Chinese exports and gross domestic product to UK jobless and monthly GDP figures that could show the economy has troughed out.

Meanwhile, markets are acting Polyanna again today. Stocks look set for another rally -- European shares are opening 1.5% or so higher, Wall Street is marked up 0.7% and Chinese mainland shares have returned to five-year highs after Friday's blip, which saw them snap an eight-day winning streak.

Record new COVID infections in the United States? Many states having to backpedal on re-openings? Rising cases across big developing economies and new clusters in places like Australia? Actually, let's focus on the positive news on Friday from Gilead's drug to treat coronavirus. Even Disney theme parks in Orlando have reopened.

So Asian shares are back to five-month peaks, Japan jumped 2% and MSCI’s emerging equity index is up around 1%. The dollar has dropped and safe-haven bond yields are roughly higher – German and U.S. 10-year borrowing costs have risen off Friday’s multi-week lows.

The equity gains, following a buoyant Wall Street close on Friday, comes as second-quarter reporting begins with expectations of a 40% collapse in earnings for S&P 500 listed companies alone.

The week’s most interesting names are financials — JPMorgan, Citigroup and Wells Fargo report tomorrow, Goldman Sachs, US Bancorp, BNY Mellon on Wednesday.

Thursday brings the first of the FAANGs, Netflix, which probably benefited during the lockdown, as well as Bank of America and Morgan Stanley. Finally, the world’s biggest asset manager, BlackRock, reports on Friday.

In Europe, Nordic banks such as SEB and Danske will report.

The view is that the second quarter is old hat, things won’t be as bad as they seem and companies may provide assurances on the third quarter. Indeed, Norway’s DNB and Orkla beat forecasts today, giving credence to such hopes.

Finally, commodities. China’s signs of revival are encouraging traders to go long copper and steel, but U.S. risks are keeping them long gold.

On European companies, aside from DNB and Orkla results, Swedish hygiene products group Essity said sales dropped as people stopped stockpiling toilet paper but lower pulp and energy costs protected core profit. Swedish group Alfa Laval recommended a 1.73 billion-euro cash bid for Finland's Neles.

Italian newspapers report PM Giuseppe Conte is keen to revoke Atlantia's operating licence for Autostrade over the 2018 Genoa bridge disaster.

Emerging markets' big story is Poland, where the incumbent president, the European Union-critical Andrzej Duda, appears to have won the election, though by a small margin.

Victory for Duda, an ally of the ruling nationalist Law and Justice party, will allow the government to implement its conservative agenda, including judicial reforms the EU calls undemocratic. Marginal move higher in the zloty, however, despite every sign of trouble down the line.

Emerging-market currencies are benefiting from a softer dollar, with Russia’s rouble up 0.4% and South Africa’s rand at its strongest level in a month. China’s offshore yuan is up 0.15%. Turkey posted a smaller-than-expected current account deficit for May but also reported a 20% drop in industrial output.

— A look at the day ahead from EMEA deputy markets editor Sujata Rao. The views expressed are her own —

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