TOKYO (Reuters) – Japan will resume fiscal reform once the economy overcomes the hit from the coronavirus pandemic, Prime Minister Shinzo Abe said, brushing aside calls by some lawmakers to keep spending permanently with money printed by the central bank.

The government has pledged to spend a combined $2.2 trillion in two stimulus packages to cushion the economic blow from the pandemic, while the central bank has pledged to buy unlimited amounts of bonds to cap borrowing costs at zero.

“Japan’s economy is battling a crisis, so the priority now is to use all available means to put it on a recovery path,” Abe told parliament on Monday, when asked how Japan would reconcile the huge spending with the need to fix its tattered finances.

“By achieving economic growth, Japan can restore fiscal health. But that doesn’t mean Japan can endlessly increase debt,” he said, adding the government will resume efforts to improve the country’s fiscal health once the economy stabilises.

Abe’s remarks come amid calls from some lawmakers for Japan to prop up the economy via unlimited money-printing to finance government spending – a concept dubbed “Modern Monetary Theory” (MMT) that has been floated by some U.S. academics.

Japan’s economy slipped into recession and is seen suffering an annualised contraction of over 20% in April-June, as lockdown measures to contain the pandemic hit consumption and businesses.

Analysts say Japan’s huge public debt – already the biggest among major industrialised nations – constrains its ability to ramp up fiscal spending to spur growth.

S&P Global Ratings last week lowered its outlook on Japan’s sovereign debt rating to stable from positive, citing increased uncertainty over the country’s fiscal health as it boosts spending to combat the health crisis.

GOLD PRICE TALKING POINTS

The price of gold trades near the monthly high ($1746) as Federal Reserve Chairman Jerome Powellprepares to testify in front of Congress, and the dovish forward guidance may keep the precious metal afloat as the central bank pledges to “increase our holdings of Treasury and agency mortgage-backed securities over coming months at least at the current pace.”

GOLD PRICE HOLDS NEAR JUNE HIGH AHEAD OF FED CHAIRMAN POWELL TESTIMONY

The price of gold has traded to fresh yearly highs during every single month so far in 2020, and the precious metal may continue to exhibit a bullish behavior in June as the pullback from the yearly high ($1765) reverses ahead of the May low ($1670).

However, bullion appears to be stuck in a narrow range following the reaction to the Federal Open Market Committee (FOMC) interest rate decision, and it remains to be seen if Chairman Powell will reveal anything new in front of US lawmakers as Fed officials pledge to “evaluate our monetary policy stance and communications as more information about the trajectory of the economy becomes available.”

Chairman Powell may strike a less dovish tone as the update to the Summary of Economic Projections (SEP) show “a general expectation of an economic recovery beginning in the second half of this year,” and it seems as though the FOMC is in no rush to deploy more non-standard measures after expanding the scope of the Main Street Lending Program “to allow more small and medium-sized businesses to be able to receive support.”

In turn, Chairman Powell may tame speculation for a yield-curve control program as “whether such an approach would usefully complement our main tools remains an open question,” and the central bank head may emphasize that “when the time comes, after the crisis has passed, we will put these emergency tools back in the toolbox” as the balance sheet climbs above $7.1 trillion in June.

Looking ahead, the FOMC may alter the forward guidance at the next interest rate decision on July 29 as “some indicators suggest a stabilization or even a modest rebound in some segments of the economy,” but the low interest rate environment along with the ballooning central bank balance sheetsmay continue to act as a backstop for the price of goldas marketparticipants look for an alternative to fiat-currencies.

With that said, the semi-annual Fed testimony may generate a similar reaction to the FOMC interest rate decision, and the price for bullion may continue to exhibit a bullish behavior in June as the pullback from the yearly high ($1765) fails to produce a break of the May low ($1670).

Investing.com – European stock markets are set to open sharply lower Monday, as a jump in reported Covid-19 cases in Asia over the weekend prompted fears of a second wave of infections and the potential economic damage this could cause.

At 2 AM ET (0600 GMT), the DAX futures contract in Germany traded 3% lower. France’s CAC 40 futures were down 3.3%, while the FTSE 100 futures contract in the U.K. fell 2.1%.

China reported a new outbreak in Beijing’s Xinfadi wholesale food market over the weekend, prompting its closure as well as the locking down of nearby housing districts.

In Japan, Tokyo also reported Sunday its highest number of new cases in around a month, with the majority of cases traced back to recently re-opened nightclubs and bars. 

This all followed a spike in cases in the United States, where more than 25,000 new cases were reported on Saturday.

“Any new outbreak will be looked at very, very cautiously by investors. The market is putting into perspective that the COVID-19 issue has not been resolved yet. It’s a reality check,” said James McGlew, analyst at stockbroker Argonaut, reported by Reuters.

Stock markets had benefited from a strong rally since late March, fueled by central bank and fiscal stimulus and optimism as countries gradually lifted their lockdown policies put in place to curb the spread of the virus.

Economic data out of China earlier Monday did little to improve the mood, with industrial output rising only 4.4% in May from a year ago, while analysts had forecast a gain of 5.0%, and retail sales falling a deeper-than-expected 2.8%.

Back in Europe, EU Commission President Ursula von der Leyen is set to meet with British Prime Minister Boris Johnson on Monday in a bid to revive stalled talks on post-Brexit ties. So far there hasn’t been much progress on a free-trade agreement and there’s not much time left to extend the end-2020 deadline for a deal.

In corporate news, BP (LON:BP) said it it expects to take up to $17.5 billion of charges in its second-quarter earnings to reflect what it expects will be the “enduring” effects of the pandemic, in the form of lower oil prices.

Elsewhere, easyJet (LON:EZJ) aircraft will fly Monday for the first time since March 30, as the British carrier resumes a small number of mainly domestic flights after weeks of lockdown. Movie theater operator Cineworld will also be in focus after it pulled out of its deal to buy Cineplex, a move that will ease concerns about its debt levels.

Oil prices slumped Monday, extending losses from last week, as new coronavirus infections hit China and the United States, potentially hitting the already fragile recovery in fuel demand.

The oil benchmarks fell about 8% last week, their first weekly declines since April. 

At 2 AM ET, U.S. crude futures traded 4.9% lower at $34.50 a barrel. The international benchmark Brent contract fell 3.4% to $37.40.

Elsewhere, gold futures fell 0.6% to $1,726.25/oz, while EUR/USD traded at 1.1237, down 0.2%.

SYDNEY (Reuters) – Asian shares stumbled on Monday and oil prices slipped as fears of a second wave of coronavirus infections in Beijing sent investors scurrying for safe-havens while underwhelming data from China further weighed on sentiment.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.3% with Australian shares off 0.1% and South Korea easing 0.3%. Japan’s Nikkei faltered 0.7%.

Chinese shares opened in the red with the blue-chip CSI300 index down 0.1%.

Monday’s losses follow a strong rally in global equities since late March, fuelled by central bank and fiscal stimulus and optimism as countries gradually lifted restrictions put in place to curb the spread of the novel coronavirus.

“Any new outbreak will be looked at very, very cautiously by investors. The market is putting into perspective that the COVID-19 issue has not been resolved yet. It’s a reality check,” said James McGlew, analyst at stockbroker Argonaut.

McGlew expects a further correction “as markets quantify what lies ahead of us.”

The lead from Wall Street was also dour with e-minis for the S&P500 sinking 1.1% in early Asian trading.

Risk sentiment took a knock after Beijing recorded dozens of new COVID-19 cases in recent days, all linked to a major wholesale food market. Authorities have closed the centre and locked down nearby housing districts.

Investors are also fretting over a spike in cases in the United States where more than 25,000 new cases were reported on Saturday.

Worldwide coronavirus cases have crossed 7.86 million with 430,501​ deaths, according to a Reuters tally.

Economic data from China did little to revive risk appetite.

China’s industrial output rose 4.4% in May from a year ago when analysts had forecast a gain of 5.0% while retail sales fell a larger-than-expected 2.8% in a sign of weak domestic demand.

The Chinese yuan extended losses in offshore trade after the data to be last at 7.0883 per dollar.

Some analysts were still hopeful of a revival in sentiment.

“We assume that any second wave is likely to be more manageable than the first given earlier policy experience,” analysts at Morgan Stanley (NYSE:MS) wrote in a note.

“Policy easing will also help Asia (excluding Japan) get back on its feet better.”

The risk-sensitive currencies of Australia and New Zealand sold off with both down 0.4% at $0.6855 and $0.6424, respectively.

Elsewhere, the safe haven Japanese yen rose on the greenback to 107.18 yen.

Analysts said further tests awaited global markets this week – in particular whether re-opening hopes could still push equities higher.

Federal Reserve Chairman Jerome Powell is also due to testify before Congress where “he may try to spin a more upbeat/hopeful outlook – but whether markets listen remains to be seen,” said Betashares chief economist David Bassanese.

Also of interest is U.S. May retail sales figures on Tuesday, which are expected to bounce smartly after a slump in April.

In commodities, oil extended losses after posting its first weekly loss since late April. Brent crude was last down 2.25% at $37.86 a barrel while U.S. crude fell 3.09% to $35.14.

Oil investors await OPEC+ committee meetings of experts later this week who will advise the producer group and its allies on output cuts. [O/R]

Gold rose 0.2% to $1,732.2 an ounce on safe haven demand.