Chinese markets update highs following business recovery

Chinese stocks are showing a rally following strong data on activity in the service sector. Service PMI released on Friday morning showed a jump to 58.4, the highest value in 10 years. The strong service sector performance complemented the strong manufacturing performance released earlier this week. As a result, the blue-chip index China A50 rose 1.5% at the beginning of trading in Asia, and in the last three days, the rally lifted the index by 6.5% to new historical records of 14850. China was the first to take the hit of the coronavirus and the applied restrictions in the economy, but it is also the first and most successful to recover business activity. At the same time, the clouds are piling up on the political horizon: India is expanding its ban on Chinese companies, restricting the work of some applications and banning imports of some goods from China, which may constrain further rallies of Chinese indices and limit the pace of economic recovery.

The Fed’s balance sheet continues to decline

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Fresh data on changes in the Fed’s balance sheet showed a decline for the third consecutive week. By winding down the crisis swap lines with other large central banks, the balance sheet shrank by another $73.3 billion to just over $7 trillion. In previous weeks, the Fed’s balance-sheet decline pulled down American indices. However, this peg seems to have broken off this week. Despite the dollar liquidity pumping out of the financial system, market participants are finding reasons to buy risky assets due to improved macroeconomic data. However, it should be noted that the economy now has an early economic indicator – the number of daily coronavirus infections. And it sends more and more warning signals.

The new records of infected in the U.S.

The number of new cases of infection in the U.S. on Thursday exceeded 57K, which is almost 50% higher than the peak levels in April. The wave of infections is explained by the mass protests that took place earlier this month, as well as more extensive testing on COVID-19. On the positive side, we can note that so far we have not seen a steady increase in the number of deaths. However, even with stable figures, the situation is worse than in Europe and China, where the number of new infections and deaths has been reduced to almost zero. As a result, the economies of Europe and China may open up, while the United States is pausing these plans. And the longer the situation persists, the less pronounced the recovery will be, as Europe and Asia can quickly take over the recovery initiative.

The U.S. is skipping the oil recovery

The U.S. oil industry can be a reflection of the entire national economy. The data published last night showed a further decline in activity: the number of oil drilling rigs decreased by another 3 to 185, while oil prices have been growing over the last 10 weeks. Production stabilized at 11mln bpd compared to 13.1mln bpd in March. At the same time, the pioneer companies of the oil shale revolution one after another claim bankruptcy, overloaded with debts. Oil prices have not risen to $100 per barrel, which generated an oil shale boom after 2010.

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