WHAT HAPPENED YESTERDAY
As of Wed 5 Feb, Singapore Time zone UTC+8
FX MOVES
U.S. Dollar Index, +0.13%, 97.93
USDJPY, +0.69%, $109.44
EURUSD, -0.14%, $1.1044
GBPUSD, +0.27%, $1.3031
USDCAD, -0.02%, $1.3283
AUDUSD, +0.58%, $0.6730
NZDUSD, +0.46%, $0.6492
MARKET MOVES
S&P500, +1.50%, 3,297.59
Dow Jones,+1.32%, 28,735.0
Nasdaq, +2.10%, 9,467.97
Nikkei Futures, +1.83%, 23,308
AUSTRALIA CENTRAL BANK KEEPS RATE STEADY, OUTLOOK INTACT DESPITE BUSHFIRES, VIRUS
Australia’s central bank held its cash rate at record lows at its first meeting of the year on Tuesday and sounded doggedly optimistic even as markets bet devastating bushfires at home and a viral epidemic in China would force aggressive easing. The Reserve Bank of Australia (RBA), which slashed its key rate three times last year to 0.75% to help achieve its employment and inflation goals, kept forecasts for economic growth intact for this year and next at 2.75% and 3% respectively. Economists now expect a cut to 0.5% in April though financial futures are pricing in the possibility of the cash rate dropping as low as 0.25% later this year, with the economic outlook clouded by bushfires and the rapidly spreading coronavirus. Lowe did acknowledge that the two events would “temporarily weigh on domestic growth” while reiterating that an extended period of low-interest rates will be needed in Australia.
IMPACT: The Aussie Dollar was relieved by the not-so-dovish posturing by the RBA and got some bids in. In addition, risk assets did well yesterday from hopes of stimulus by the PBOC to support assets, thus fuelling a healthy positive close for the Aussie Dollar. Any more talks of support from the Chinese Government or abatement in the Coronavirus narrative will be supportive for the Aussie and risk-assets.
TESLA PARABOLA & U.S. MARKET STRENGTH
Tesla (TSLA 887.06, +107.06, +13.7%) was undoubtedly the stock of the day, clouding Alphabet and its earnings results. Shares were up more than 24% today in a short squeeze beyond belief that had some fearing of losing out on more gains and others starting to believe in the story. Shares did lose steam into the close but still finished up 13.7%. China helped instill the bullish bias overnight when it stabilized its markets by injecting more liquidity into the system. The People’s Bank of China will also reportedly issue cuts to its key lending rate and reserve requirement ratios for banks to help offset the negative economic impact resulting from the coronavirus.
IMPACT: Cyclical sectors did most of the heavy lifting, especially the information technology sector (+2.6%), as the market glanced past a revenue miss from Alphabet (GOOG 1447.07, -38.87, -2.6%). The rate-sensitive utility sector (-1.0%) was the lone holdout, as the selling in the Treasury market drove yields higher. Easy monetary policy usually bodes well for equities on the presumption that greater economic growth, and earnings growth, will follow. Whether that plays out or not, the bullish price action in the market likely fuelled the rally amid fear of missing out on further gains.
CORONAVIRUS CLAIMS SECOND LIFE OFF MAINLAND, MACAU CASINOS TOLD TO CLOSE
The coronavirus outbreak claimed its first life in Hong Kong on Tuesday, compounding the international financial center’s problems after anti-government protests, and Macau, the world’s biggest gambling playground, urged casinos to shut their doors. The victim in Hong Kong was a 39-year-old man with an underlying illness who had visited China’s Wuhan city, the epicenter of the outbreak now under virtual quarantine. It was the second death from the new coronavirus outside mainland China. A man died in the Philippines last week after visiting Wuhan, the first virus-related overseas fatality.
IMPACT: Gross gambling revenue could decline 65% year-over-year in February if Macau’s casinos closed for two weeks, Jefferies analysts said Tuesday. Shares dropped further on Tuesday, taking the year-to-date declines for MGM China Holdings Ltd. 2282 -2.19% and Wynn Macau Ltd. WYNMY -0.25% to 16% and 14% respectively, according to data from Refinitiv. Shares in Sands China Ltd., SCHYY -0.98% which is part-owned by Las Vegas Sands, have fallen 11%.
DAY AHEAD
Risk-Assets will continue to tread a fine line between staying bid on hopes of stimulatory efforts by the PBOC and global central banks amidst the virus outbreak or capitulate to foreseeable worsening fundamentals due to a marked slowdown in global trade, manufacturing, and sales. Expect elevated volatility in terms of price action as the camps between buyers and sellers about the Coronavirus narrative is rather polarized at this point in time.
Trump’s State Of The Union (SOTU) is a closely watched today, the address comes at a dramatic moment for the president, with the Senate expected to vote to acquit him on Wednesday, after his impeachment by the House last month. Trump will be speaking in the same chamber that voted to charge him with abuse of power and obstruction of Congress, as House Speaker Nancy Pelosi looks on from behind. SOTU is still ongoing at the point of writing, market reaction is yet to be seen.
SENTIMENT
OVERALL SENTIMENT: US markets seem oblivious to the fears of the coronavirus in Asia. Risk-On sentiment prevails when US equities are open as investors have been conditioned to a buy-on-dips mentality. This will not last as the economic impact of the coronavirus crisis will start to take hold as supply chains get disrupted the longer China remains closed off.
i.e. CCY, Ticker (Short-Term: 1-3 MONTHS, Medium-Term: 3-6 MONTHS, Long-Term: 6-12 MONTHS)
FX
US DOLLAR, USD (-ve, Neutral, +ve)
JAPANESE YEN, JPY (+ve, +ve, neutral)
EURO, EUR (Neutral, Neutral, Neutral)
STERLING, GBP (Neutral, Neutral, Neutral)
CANADIAN DOLLAR, CAD (-ve, -ve, Neutral)
AUSTRALIAN DOLLAR, AUD (Neutral, Neutral, Neutral)
NEW ZEALAND DOLLAR, NZD (Neutral, Neutral, Neutral)
SWISS FRANC, CHF (+ve, +ve, neutral)
MARKETS
S&P 500, SPX (+ve, +ve, +ve)
NIKKEI 225, JP225 (Neutral, -ve, -ve)
SHANGHAI COMPOSITE, SSEC (-ve, -ve, Neutral)
TRADING TIP OF THE DAY
The SUREST WAY TO LOSE MONEY …
The simplest and easiest way for traders to lose their shirts is to not have any stop-losses. I have yet to meet any successful traders who are not used to taking losses when they are wrong. Taking losses is an integral part of becoming successful.
Before you execute any trade, ask yourself, “Where is the stop for this trade?”. If you do not have the answer, you do not have a trade. It’s as simple as that.