WHAT HAPPENED YESTERDAY
As of Tue 11 Feb, Singapore Time zone UTC+8
FX MOVES
U.S. Dollar Index, +0.20%, 98.86
USDJPY, +0.14%, $109.78
EURUSD, -0.36%, $1.0911
GBPUSD, +0.20%, $1.2916
USDCAD, +0.05%, $1.3318
AUDUSD, +0.29%, $0.6690
NZDUSD, -0.16%, $0.6388
MARKET MOVES
S&P500, +0.73%, 3,352..09
Dow Jones, +0.60%, 29,276.82
Nasdaq, +1.13%, 9,628.39
Nikkei Futures, +0.47%, 23,715.0
SUMMARY: US stock markets did well with both S&P500 and NASDAQ indices making new highs yet again. Three names largely behind today’s advance were Amazon (AMZN 2133.91, +54.63, +2.6%), Microsoft (MSFT 188.70, +4.81, +2.6%), and Alphabet (GOOG 1508.68, +29.45, +2.0%), which each rose at least 2.0%. Investors presumably remained assured that these tech giants offered a good mix of growth and safety, especially amid the coronavirus outbreak.
Advanced Micro Devices (AMD 52.26, +2.53, +5.1%) outperformed following a speculative report that Apple (AAPL 321.55, +1.52, +0.5%) could use its chips instead of Intel’s (INTC 66.39, +0.37, +0.6%) in future Macs. IBM (IBM 154.43, +1.02, +0.7%) will reportedly deploy Slack’s (WORK 26.57, +3.58, +15.6%) platform for all its employees.
U.S. Treasuries posted modest gains, pushing yields lower across the curve. The 2-yr yield declined one basis point to 1.38%, and the 10-yr yield declined three basis points to 1.55%. The U.S. Dollar Index increased by 0.2% to 98.85.
CHINA INFLATION SOARS AS VIRUS TRIGGERS BUYING OF ESSENTIALS
China’s consumer price index rose 5.4% in January, after rising 4.5% in December. The rise in consumer prices continues a recent acceleration for inflation in China, according to the country’s National Bureau of Statistics. Inflation hit 3% in September and then broke above 4% in November.
The bureau said in a statement that the increased inflation in January was due to the Lunar New Year holiday, the coronavirus outbreak and a lower price base from last year, according to Reuters. January’s jump was also fuelled by a rise in pork prices due to the Asian swine fever that has decimated hog populations in China.
IMPACT: The rise in inflation is due to a shortage of supplies and not one that is driven by economic growth. Hence, the probability of the central bank raising interest rates is unlikely to increase especially in the face of an already fragile Chinese economy. We do not expect the Chinese Yuan to rise as a consequence of rising inflation prints, but instead, the government is likely to respond with fiscal measures. The promise of accommodative monetary policy to buoy the economy has been well received by investors, hence it’s key to note that markets may not sell off on weaker economic growth out of Asia if it’s met with overwhelming stimulus.
Morgan Stanley estimates that the coronavirus could slash up to 2 percentage points off China’s first-quarter growth if factory suspensions nationwide would continue beyond February. Movement of goods and people has also been severely disrupted, with some firms including South Korea’s Hyundai Motor and Japan’s Nintendo expecting significant disruptions in their supply chains. Beijing is mulling slashing its 2020 growth target of approximately 6 percent and readying fiscal and monetary stimulus to counter the effects of the outbreak.
Rising inflation prints as growth slows is a bad economic outcome that the market has not has to deal with in major economies for many years now.
VIRUS UPDATE: MORTALITY ESTIMATE AT 1%
The death toll from the coronavirus climbed above 1,000, as the Chinese province at the epicenter of the outbreak reported its highest number of fatalities yet. The mortality rate from the coronavirus in China is estimated at 1%, according to a new report that attempts to account for mild cases as well as severe ones. That compares with a 9.5% fatality rate for SARS, and as much as 0.4% for 2009 H1N1 “swine flu” pandemic.
IMPACT: Any significant revision of the mortality rate will have an impact on risk assets.
DAY AHEAD
Federal Reserve Chairman Jerome Powell will be giving his semi-annual testimony on the economy before the House today and to the Senate tomorrow. Powell will look to provide a view on the economy and some clues on policy without tying himself or his colleagues to a specific policy path. Expect some questions about the economic impact of the coronavirus.
The Reserve Bank of New Zealand (RBNZ) will hold its first policy meeting of 2020 tomorrow morning. Investors see a less than 10% chance that the RBNZ will cut interest rates in February, though with downside risks on the rise, those low odds may soon start to creep higher. New Zealand’s economy is likely to take a significant hit from the epidemic as the strict travel restrictions in China are sure to hurt the country’s tourism industry, which is heavily reliant on Chinese visitors. Other vital exports such as dairy products could also be negatively affected as overall demand from China is expected to be severely dampened.
Investors will also be paying close attention to the RBNZ’s updated economic forecasts, which will be published alongside the policy decision, as well as Governor Adrian Orr’s remarks in his press conference. The Bank had lowered its growth forecasts for both 2020 and 2021 in its November projections and further downward revisions in its latest Monetary Policy Statement could push up expectations of a rate cut in the coming months. Any increase in rate cut odds will be bearish for the New Zealand Dollar.
SENTIMENT
OVERALL SENTIMENT: As some factories reopened in China, and with the market getting used to more cases of coronavirus infection being discovered daily, the negative sentiment ebbed for now. US stocks continue to power ahead. Expect the worries to mount again as the spread of the virus is yet to be controlled.
i.e. CCY, Ticker (Short-Term: 1-3 MONTHS, Medium-Term: 3-6 MONTHS, Long-Term: 6-12 MONTHS)
FX
US DOLLAR, USD (Neutral, 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 (-ve, Neutral, Neutral)
NEW ZEALAND DOLLAR, NZD (-ve, 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
LOSE your way to SUCCESS!
In trading, much like in life, expect to suffer setbacks. If you do not know how to take losses objectively and without emotion, you have no place in trading. Many of the trades that you put on are bound to go wrong and hit your stop-loss levels. That does not make you a bad trader. Moving your stop-loss levels or not having any stop-loss in place and letting your losses run will ensure you will eventually lose all your money. Those are the habits of a bad trader.
Take your losses, preserve your capital. Live to fight another day. Making money in trading is not difficult, but losing money is infinitely easier when you don’t know how to take losses. Get used to taking losses if you want to be successful and consistently profitable in the long run!
