WHAT HAPPENED YESTERDAY
As of Fri 7 Feb, Singapore Time zone UTC+8
FX MOVES
U.S. Dollar Index, +0.22%, 98.47
USDJPY, +0.14%, $109.96
EURUSD, -0.16%, $1.0981
GBPUSD, -0.55%, $1.2931
USDCAD, +0.06%, $1.3288
AUDUSD, -0.21%, $0.6732
NZDUSD, -0.22%, $0.6460
MARKET MOVES
S&P500, +0.33%, 3,345.78
Dow Jones, +0.30%, 29,379.77
Nasdaq, +0.67%, 9,572.15
Nikkei Futures, +2.50%, 23,934.0
SUMMARY: The lead news item yesterday was China announcing it will cut tariffs on $75 billion of U.S. imports by 50% on Feb. 14. This should not only help Beijing fulfill its pledges from the Phase One trade deal, but also provide additional economic stimulus. In the U.S., weekly jobless claims falling to their lowest level in nine months was another good sign for the economy. Mega-cap technology stocks did the heavy lifting today, helping the S&P 500 communication services (+1.1%) and information technology (+0.9%) sectors outpace the broader market.
AUSSIE RETAIL SALES
Retail sales dropped 0.5% in December, the worst monthly performance since August 2017, to A$27.77 billion ($18.75 billion) when economists polled by Reuters had forecast a 0.2% fall. Encouragingly, however, figures for November were upwardly revised to a brisk 1% gain while quarterly data showed inflation-adjusted sales rose by a larger-than-expected 0.5% following a 0.1% decline in the September quarter. Yet much of those gains were due to the blockbuster November sales led by Black Friday promotions and analysts expect the first quarter of 2020 will see a return of tepid consumption. Adding to the issue, the bushfires and a fast-spreading virus in China – Australia’s top trading partner – are further threatening broader activity.
IMPACT: Aussie Dollar finished lower on the back of the weaker economic print. The looming impact of Coronavirus on sales coupled with an already tepid consumer market may cause Aussie to remain subdued, albeit this is also dependent on Chinese stimulus efforts if the PBOC remains supportive, global risk assets will still get bids.
CHINA CUTS TARIFFS ON US$75b IN US IMPORTS
China cut tariffs on $75 billion of U.S. imports including auto parts on Thursday in response to American reductions as part of their truce in a trade war. The cuts come as China struggles with the mounting cost of measures imposed to contain a virus outbreak that has closed factories, stores, and other businesses. The reductions apply to tariffs imposed on Sept. 1 as the two sides were ratcheting up their dispute over Beijing’s technology ambitions and China’s massive trade surplus, the Ministry of Finance said. It said two groups of tariffs would be reduced by half, from 15% to 7.5% and from 10% to 5%. “The next steps depend on the development of the Chinese-U.S. economic and trade situation,” said a Ministry of Finance statement. “We hope to work with the United States toward the final elimination of all tariff increases.”
IMPACT: The move spurred a rally on global stock markets with Asian bourses rallying from deep losses on mounting concerns over the impact on China from the virus. European shares also gained ground while the US market opened higher. China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks closed 1.9 percent higher on Thursday, while Tokyo’s Topix finished the day up 2.1 percent. The Hang Seng had its best day since September, rising 2.6 percent.
CORONAVIRUS WHISTLEBLOWER DOCTOR DIES IN WUHAN HOSPITAL
A Chinese doctor who became a hero to millions for raising the alarm over the coronavirus epidemic has died, sparking an outpouring of grief and anger. Li shot to fame after December 30 when he warned fellow medics in an online chat group that seven new pneumonia cases had been identified. Chinese internet users shared screenshots of the chat group discussion. By that evening, the hashtag “Wuhan Sars” was trending on Weibo before censors removed it. The topics “Wuhan government owes Dr. Li Wenliang an apology,” and “We want the freedom of speech,” soon began to trend on China’s Twitter-like platform, Weibo. Each gained tens of thousands of views before disappearing from the heavily censored platform.
IMPACT: Chinese citizens have a deep-seated discontent towards the government due to their muted response towards the initial outbreak of the Coronavirus. Their handling of Dr. Li added weight to the aggrievement and may erupt into a backlash should more of such incidents occur. It is also key to note that the doctor was young of age (34) and probably getting the best treatment possible in Wuhan, his death is telling that the mortality rate of the virus may be higher than what the media suggests.
CORONAVIRUS: SINGAPORE CONFIRMS 2 NEW LOCAL INFECTIONS; 1 APPEARS TO HAVE NO LINK TO PREVIOUS CASES
Two more Singaporeans were confirmed to have been infected by the coronavirus, said the Ministry of Health (MOH) on Thursday (Feb 6). One did not travel to China recently and does not seem to be linked to previous cases. This brings the total number of confirmed cases here to 30, of which 11 are Singaporeans. The two new cases announced on Thursday are in stable condition. Of the remaining cases, 25 are stable or improving, and one has been discharged. But the condition of the two cases has worsened. One is now in critical condition in the intensive care unit, and another requires additional oxygen support.
IMPACT: Should more clusters be found in Singapore, the economic impact will be more profound. As the MAS cited, they are ready to ease Singapore Dollar in response. We are coming to the end of the incubation period of those who were exposed to Wuhan tourists who arrived before the city shut down and this is a crucial time to watch out for new clusters. The Singapore Dollar should weaken on any significant spikes in cases.
DAY AHEAD
Global capital markets are recovering as central bank easing in Southeast Asia and China to preemptively cushion the economic impact of Coronavirus, coupled with China announcing it will cut tariffs on $75 billion of U.S. imports by 50% on Feb. 14. were appreciated by markets.
Later in the day, attention will turn to U.S. employment numbers for January. Non-farm Payrolls (NFP) are expected to clock in at 156k, mildly higher than the 145k in December, and a number consistent with further tightening in the jobs market. The unemployment rate is forecast to hold steady at 3.5%, while average hourly earnings are anticipated to accelerate slightly to 3.0% on a yearly basis, from 2.9% previously. A strong employment report will further cement risk appetite and push the S&P500 above its recent highs, potentially drawing the attention of CTAs who will buy the breakout. A strong NFP is expected after the huge surprise, on Wednesday, of the ADP Employment Change for Jan (actual +291K vs 156K).
SENTIMENT
OVERALL SENTIMENT: The number of coronavirus patients classified as in critical condition increased by almost 1000 (total now at 4821) in the last 24 hours. The situation continues to worsen but global markets are shrugging this off for the moment. The economic impact will be significant as supply chains are being disrupted with many Chinese factories and ports closed. Should this continue, businesses everywhere will soon have to find alternative suppliers at a higher cost.
Global markets are risk-on for now, but this should not be the case in Asia. Asian currencies (such as SGD) are in for a tough time going forward.
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
You don’t need to be trading all the time…
Many retail traders are obsessed with being frequent traders. The mindset seems to be the more I trade, the more profits I will make. You should only trade when there is a viable trade that has good risk vs reward characteristics. When there is no such trade available, time should be spent on keeping in touch in market developments and preparing for the time when clearer opportunities become available.
Spend time doing more meaningful things than staring at the screens and forcing a trade just for the sake of being involved. TGIF!
To get yourself on the right path to success, you have done it the way that works for the traders who have found success!
