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!

WHAT HAPPENED YESTERDAY

FX MOVES

U.S. Dollar Index, +0.23%, 98.70
USDJPY, -0.25%, $109.73
EURUSD, -0.32%, $1.0945
GBPUSD, -0.29%, $1.2893
USDCAD, +0.21%, $1.3312
AUDUSD, -0.86%, $0.6673
NZDUSD, -0.88%, $0.6402

MARKET MOVES

S&P500, -0.54%, 3,327.71
Dow Jones, -0.94%, 29,102.51
Nasdaq, -0.54%, 9,520.51
Nikkei Futures, -0.50%, 23,830.0

SUMMARY: The S&P 500 information technology sector (-1.5%) was an influential weight on the market amid broad-based weakness. Apple (AAPL 320.03, -4.41, -1.4%) was pressured by news that it extended the closure of its China stores through Feb. 15. The defensive-oriented consumer staples sector (+0.2%) outperformed. U.S. Treasuries finished on a higher note amid the negative bias in the stock market. The 2-yr yield declined six basis points to 1.39%, and the 10-yr yield declined seven basis points to 1.58%. The U.S. Dollar Index increased by 0.2% to 98.69. WTI crude fell 1.2%, or $0.62, to $50.35/bbl.

U.S EMPLOYMENT SITUATION

Nonfarm payrolls grew by 225,000 in January, beating the consensus of 164,000 and corroborating prior reports from this week that the U.S. hiring activity remained strong. Average hourly earnings increased by 0.3%, as expected, while the unemployment rate increased to 3.6% (consensus 3.5%) from 3.5%. The key takeaway from the report is that employment conditions remain in that sweet spot of being strong on the hiring front while inflation remains benign as average hourly earnings growth isn’t accelerating sharply enough to provoke imminent rate-hike concerns.

IMPACT: The employment report capped a series of good reports this week, but it wasn’t enough to warrant more gains on Friday. The S&P 500, after all, entered the session up 3.7% for the week in part due to data showing strength in the labour market.

CANADA ADDS MORE JOBS THAN EXP., MARCH RATE CUT LESS LIKELY

Statistics Canada said on Friday that 34,500 jobs had been created in January, the second straight month of healthy gains after a record loss in November. The unemployment rate dipped to a near record-low 5.5%. Analysts had forecast a gain of 15,000 positions and for the jobless rate to stay at 5.6%. The Bank of Canada has held its key interest rate steady since October 2018 but said last month a cut was possible if a recent slowdown in domestic growth persisted. The bank’s next scheduled rate announcement is March 4.

IMPACT: Market expectations of an interest rate cut in March, as reflected in the overnight index swaps markets, dipped to 10.89% from 12.89% before the data was released.

DEADLIEST DAY FOR CORONAVIRUS 

Mainland China had its deadliest day in the coronavirus outbreak Friday, with authorities reporting 86 fatalities from the pneumonia-like illness that is paralyzing much of the country. The majority of new cases were recorded in Hubei province and its capital, Wuhan, the epicenter of the outbreak. Authorities finished construction on a new hospital in Wuhan last week, and another is due to open in the coming days to treat the growing number of patients. Meanwhile, it emerged that a 60-year-old United States citizen had died from the virus at Jinyintian Hospital, in Wuhan, on February 6, according to the US Embassy in Beijing, marking the first confirmed death of a foreigner from the virus. Japan also reported its first death of suspected coronavirus in Wuhan on Saturday, according to an announcement from the Ministry of Foreign Affairs. The Japanese man in his 60s died of pneumonia. The hospital that treated him was inconclusive on the cause of pneumonia.

IMPACT: To stop the virus from spreading further, Beijing has taken the unprecedented step of trying to quarantine entire cities in Hubei. About 60 million people are under various travel restrictions, as roads are blocked, train stations closed and flights canceled. The Chinese government has issued new regulations to severely punish people who disrupt the epidemic control work. Those who violate the rules will be subject to speedy arrests and sentences, and even the death penalty.

CHINA MOVES TO PATENT GILEAD’S EXPERIMENTAL DRUG

China has applied to patent a drug candidate being developed by Gilead Sciences as the government rushes to find the cure for the deadly coronavirus, a move that could raise questions on intellectual property and marketing rights. The state-backed Institute of Virology in Wuhan filed the patent for using remdesivir to fight the novel coronavirus on January 21, according to a statement posted on its website two weeks later on February 4. If approved, the drug will be used to facilitate its potential global market entry, it added.

IMPACT: The Chinese researchers said the filing was based on “international practice” and for the “protection of national interest,” adding it will “temporarily not exercise any intellectual property rights if foreign pharmaceutical firms are willing to contribute towards combating the outbreak in China.”

DAY AHEAD

China’s central bank may have managed to stabilize the markets by injecting billions of dollars into the financial system, but investors will still be keeping a close watch on how successful authorities are in curbing the spread of the coronavirus. The longer it takes to bring the situation under control, the longer many businesses will remain shut, hence the bigger the disruption to the domestic economy and to global supply chains. Although the government has pledged to provide more support to help the sectors most hit by the endemic, the relief rally may dwindle once a clearer picture starts to emerge of the full damage of the virus on the economy.

With the virus outbreak being the primary focus, Chinese consumer and producer price data for January due today is unlikely to draw much interest as they will be considered stale news as the outbreak became serious only in late Jan.

SENTIMENT

OVERALL SENTIMENT: When Singapore escalated the Disease Outbreak Response System Condition (DORSCON) from yellow to orange on Fri evening, it caused some panic buying of staples at the supermarkets. The reaction shows how unprepared the general populace is in facing up to the facts that this virus outbreak is a serious issue that will continue to escalate in the near future. The focus this week will be on how much of China’s production facilities will resume and if the ports which have been closed will re-open.

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 (-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

Keep Calm and Find the Right Trades…

In times of uncertainty, there is bound to be large amounts of volatility and many conflicting headlines will hit the newswires. In this age of social media and fake news, be sure to have credible news sources that you can rely on. It is crucial not to blindly react to price action and give in to FOMO (Fear of Missing Out).

With such volatility, there will be many trading opportunities as prices tend to get out of whack as fear and greed dominate the thinking of the average investor. Focus on the facts, and what are the high probability or even, inevitable outcomes.

For example, the initial cases of the virus infection overseas are mostly tourists from wuhan or visitors to wuhan who returned home. We are now seeing cases of locals who are exposed to these patients before they showed up at the hospitals. Soon, there will be cases of other members of the local communities who were exposed to these infected locals. What next?

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!

WHAT HAPPENED YESTERDAY

As of Wed 5 Feb, Singapore Time zone UTC+8

FX MOVES

U.S. Dollar Index, +0.33%, 98.26
USDJPY, +0.27%, $109.82
EURUSD, -0.39%, $1.1001
GBPUSD, -0.27%, $1.2996
USDCAD, +0.09%, $1.3286
AUDUSD, +0.20%, $0.6751
NZDUSD, -0.14%, $0.6481

MARKET MOVES

S&P500, +1.13%, 3,334.69
Dow Jones, +1.68%, 29,290.85
Nasdaq, +0.43%, 9,508.68
Nikkei Futures, +2.44%, 23,652.5

SUMMARY: The bullish price action was driven mostly by optimism, particularly tied to the prevailing view that the economy is fine and any negative impact resulting from the coronavirus will be minimal. Aiding this sentiment were reports that progress is being made in developing a treatment and economic data depicting a healthy labor market and services sector.

NEW ZEALAND EMPLOYMENT DATA

The unemployment rate in the fourth quarter dropped to 4.0% from a downwardly revised 4.1% in the previous quarter, while job growth was flat, compared to forecasts in a Reuters poll for an unemployment rate of 4.2% and job growth of 0.3%. The seasonally adjusted underutilization rate, a gauge of untapped capacity in the labor market, fell to 10.0% in the December 2019 quarter, an 11-year low, and down from 10.4% last quarter. The participation rate fell to 70.1%, its lowest since June 2017. Private sector wages increased 0.6% over the previous quarter, with annual growth accelerating to 2.4%.

IMPACT: The data was being closely watched ahead of Reserve Bank of New Zealand’s (RBNZ) first monetary policy decision for 2020 due next week. The bank has adopted a dual policy mandate that includes targeting employment alongside inflation. The decline in the unemployment rate increases the likelihood that the RBNZ will keep rates on hold in February. The New Zealand Dollar rose slightly after the announcement but quickly gave up its gains to end the day lower.

RBA GOV. PHILLIP LOWE SEES CORONAVIRUS & BUSHFIRES AS SHORT-TERM ECONOMIC SPEEDBUMBPS

Having noted the possibility of a “gentle turning point” in the economy in the second half of 2019, RBA governor Philip Lowe has become more confident of that shift, both internationally and domestically. “With the progress on the trade and Brexit issues, there have been some signs that the downswing in manufacturing activity and international trade is coming to an end,” he told a National Press Club luncheon in Sydney. “Our central forecast is for the Australian economy to expand by 2.75 percent over 2020 and 3 percent the following year. “These growth rates are a little above our current estimate of medium-term growth in Australia, so some inroad into spare capacity should be made.” Lowe reiterated that, if the negatives did outweigh the positives and unemployment started to rise, the Reserve Bank board would be prepared to cut interest rates even further.

IMPACT: This means the Reserve Bank thinks unemployment will edge lower and wages should edge higher, as should the increase in consumer prices that forms the key part of its monetary policy target. This is positive posturing by the RBA on Australia’s economic trajectory. We might be seeing early green shoots in the economy resulting in buyers coming into the Aussie that might develop into a healthy trend for the currency if this is coupled with sustained stimulus from China.

TRUMP’S STATE OF THE UNION TAKEAWAYS

Trump ignores the cloud of impeachment, but disunity on display

Trump did not mention impeachment or investigations into his administration, which he frequently calls “witch hunts” and “hoaxes.” But the division in the House chamber was palpable as Trump ticked through a litany of partisan accomplishments and measures. Even before he began his remarks, Trump ignored an outstretched hand from Speaker Nancy Pelosi. As soon as Trump finished, she physically tore up a copy of the speech, eliciting criticism from the White House.

Trump tried to paint Democrats as socialists

Trump’s reelection campaign has included attempting to paint Democratic presidential candidates as socialists, and Trump brought that rhetoric into the House chamber by discussing how some of them support eliminating private health insurance.

Taking credit for a ‘blue-collar boom’

Trump’s address focused heavily on the economy, a central tenet of his reelection pitch. The U.S. is in a record-setting 11th year of economic expansion, with unemployment at a 50-year low, the stock market up about 20% since last year and wages growing. While Trump has received historically low approval ratings throughout his presidency, Americans have generally given him higher marks on the economy than they have for his overall job performance.

IMPACT: The impact of Trump’s SOTU was negligible on markets, other than the fact that it made key headline news.

SINGAPORE DOLLAR TUMBLES AFTER MAS FLAGS SCOPE FOR DECLINE

Singapore’s central bank said on Wednesday that its current exchange-rate band has enough room to accommodate an easing of the local currency, even as monetary policy stance remains unchanged. The Monetary Authority of Singapore (MAS) was responding to media queries about its monetary policy stance, given that traders are betting that central banks will loosen the policy to support the economy due to the coronavirus outbreak.

IMPACT: Unlike most central banks that use interest rates to manage policy, Singapore uses the currency as the policy tool. The MAS manages the Singapore dollar by monitoring its value against a basket of currencies of her trade partners. The currency is allowed to fluctuate within an unspecified band, and the MAS intervenes by buying or selling the currency when it goes out of the band. The Singapore dollar slid 0.8% vs the USD to a four-month low after the MAS statement on Wednesday. It has weakened further today with USDSGD rising to 1.3853. With the SGD currently hovering close the middle of the band (as modeled by most banks), SGD weakness is likely to continue as the economic impact of the coronavirus crisis starts to show.

THAILAND CUTS RATES TO RECORD LOW DUE TO SPREADING CORONAVIRUS

Thailand’s central bank unexpectedly cut its benchmark interest rate for a third time in six months on Wednesday, taking it to a record low as a virus spreading from China puts further pressure on the struggling economy. The Bank of Thailand’s (BOT) monetary policy committee voted unanimously to cut the one-day repurchase rate by 25 basis point to a fresh record low of 1.0 percent, the lowest in Asia outside of Japan. Thailand may see 2 million fewer Chinese tourists than last year’s 11 million, according to the Tourism Authority of Thailand. China is Thailand’s biggest source of tourists, making up 28 percent of the total last year.

IMPACT: A joint standing committee of industry, banking, and commerce said on Wednesday the country’s tourism earnings may tumble by 108 billion baht to 220 billion baht (S$4.8 billion-S$9.8 billion) if the outbreak lasts for three to six months. Thailand’s and Singapore’s easing of its monetary policy might open the door for other Southeast Asian (SEA) economies to ease as well, strengthening bids for the U.S. Dollar against SEA Currencies.

DAY AHEAD

Consistent with our recurring narrative, developments on Coronavirus will have an impact on risk assets. However, central banks’ resolve in providing stimulus and support to the economy is well received by traders, overcoming any fears of economic impact for now. Risk-Assets may continue to see ongoing bids today, with the S&P500 making new highs. Idle money on the sidelines may be drawn back in as momentum to the upside builds, and the capitulation of shorts in the near term might add to the velocity of this move.

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

”MANY Losses, but VERY FEW Gains…”

This was the first trading tip given to me by the first boss (who now manages a billion USD in a hedge fund) I worked for when I started as a trainee on the trading desk in JPMorgan Chase London. “That”, he says, “was the path to trading success.”

How is having many losses but very few gains going lead you to success?

The answer, of course, lies in the size of the losses and the gains. You need to take many small losses and very few but sizeable gains. This is as the old adage goes – Cut your losses and ride your gains. Struggling traders tend to do the opposite because they are obsessed with being right and fascinated with taking small profits. They let their losses grow because they think that as long as they don’t cut loss, it is not a real loss. Of course, what tends to happen is that the losses grow to such an extent that they get stopped out because they have blown up their whole trading account!

To get yourself on the right path to success, you have done it the way that works for the traders who have found success!

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.

As of Tue 4 Feb, Singapore Time zone UTC+8

FX MOVES

U.S. Dollar Index, +0.39%, 97.81
USDJPY, +0.21%, $108.61
EURUSD, -0.24%, $1.1063
GBPUSD, -1.40%, $1.2997
USDCAD, +0.41%, $1.3296
AUDUSD, -0.04%, $0.6690
NZDUSD, +0.02%, $0.6460

MARKET MOVES

S&P500, +0.73%, 3,248.92
Dow Jones, +0.29%, 28,338.0
Nasdaq, +1.34%, 9,273.40
Nikkei Futures, +0.37%, 22,847.5
ASX 200 Futures, +0.04%, 6,858.5

WHAT HAPPENED YESTERDAY

CHINA’S JAN FACTORY ACTIVITY GROWTH SLOWS TO 5-MONTH LOW

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) eased to 51.1 from 51.5 in December, missing expectations but remaining above the 50-mark that separates growth from contraction for the sixth straight month. Analysts had expected a reading of 51.3. The findings, which focus mostly on small and export-oriented businesses, were slightly more optimistic than those in an official survey released on Friday, which showed growth had stalled. But they likely did not reflect the early impact of the public health crisis which flared in late January, which could weigh heavily on economic growth in the coming months.

*IMPACT:* China’s production numbers should only deteriorate from here due to a domestic standstill. To alleviate the impact of weaker growth, the People’s Bank of China (PBOC) may fix the RMB lower against the Dollar to facilitate trade, this will be bearish for currencies that are economically sensitive to China, like the Aussie and Singapore Dollar.

U.S. MANUFACTURING REBOUNDS

The Institute for Supply Management (ISM) said its index of national factory activity increased to a reading of 50.9 last month, the highest level since July, from an upwardly revised 47.8 in December. A reading above 50 indicates expansion in the manufacturing sector. While manufacturing appears to be stabilizing, the construction sector is showing some weakness. A separate report from the Commerce Department on Monday showed construction spending decreased 0.2% in December, the first drop since June, as an investment in both private and public projects fell.

*IMPACT:* Manufacturers have been heartened by easing trade tensions with China and the signing of a new trade deal with Mexico and Canada that replaces the old North American Free Trade Agreement. Yet the coast is far from clear, especially with the spread of the coronavirus causing nations to close themselves off to China. China is the world’s largest manufacturing hub and the second biggest economy in the world. The U.S. isn’t immune. Some economists predict the damage from the virus could be significant in the first quarter, cutting as much as 0.5% points off U.S. growth. Any slowdown in U.S. while foreign buying of Treasuries remains weak will cause the Fed to keep pace with its Balance Sheet Expansion program, this is positive for equities and bearish for Dollar in the long run.

STERLING SLIDES ON WHAT COMES NEXT IN BREXIT

Britain and the European Union have taken their first steps toward negotiating a new free trade deal, staking out sharply divergent positions Monday that point to more fraught negotiations and another year of uncertainty for businesses. The United Kingdom is now in a transition period until the end of 2020 during which it must agree to a trade deal with the European Union or risk subjecting British companies to new barriers that could impact supply chains and make their products and services more expensive.

*IMPACT:* The path taken by the United Kingdom will have major consequences for companies that have already endured nearly four years of uncertainty. The global automakers who have built factories in Britain are particularly vulnerable to changes that could disrupt their just-in-time supply chains and production, eroding profit margins that are already razor-thin. Signs that the two sides are already at odds over how to interpret that declaration sent Sterling down against the Dollar and the Euro on Monday as traders worried about the implications for the UK economy of failing to reach a deal.

DAY AHEAD

The Reserve Bank of Australia (RBA) has a tough balancing act on its hands when it concludes its policy meeting later today. On the one hand, recent data have been solid enough to dispel market expectations for an immediate rate cut to support the economy, with the implied probability for such an action currently resting at a lowly 28%. The unemployment rate fell back down to 5.1% in December, retail sales accelerated sharply in November, and inflation picked up in Q4 – even if it remains stubbornly below the RBA’s target range.

However, these are backward-looking data and new risks have emerged. For example, several weeks of raging bushfires across Australia threaten to dampen economic growth. Likewise, the coronavirus epidemic amplifies downside risks for Australia’s economy, not only due to spillover effects from a slowdown in China and falling commodity prices but also due to the negative impact this might have on Australia’s tourism industry, which relies heavily on Chinese travelers.

Sentiment

FX

US DOLLAR, USD (positive)
JAPANESE YEN, JPY (positive)
EURO, EUR (neutral)
STERLING, GBP (neutral)
CANADIAN DOLLAR, CAD (negative)
AUSTRALIAN DOLLAR, AUD (neutral)
NEW ZEALAND DOLLAR, NZD (neutral)
SWISS FRANC, CHF (positive)

MARKETS

S&P 500, SPX (neutral)
NIKKEI 225, JP225 (neutral)
SHANGHAI COMPOSITE, SSEC (neutral)
ASX 500, AUS200 (neutral)

COMMODITIES

OIL, CL (negative)
GOLD, GC (positive)
COPPER, HG (negative)

DAY AHEAD 

As of Mon 3 Feb, Singapore Time zone UTC+8

The Peoples Bank of China (PBOC) has forewarned over the weekend that financial measures will be taken on today’s open to cushion any possible market rout. The PBOC announced that the total injection announced was 1.2 trillion yuan, the largest single-day addition of its kind in data going back to 2004. The money will be supplied using reverse repurchase agreements to ensure liquidity is “reasonably ample” during the outbreak. On the open, China’s commodity futures slumped, crude oil, iron ore, steel rebar futures hit limit-down. Shanghai Composite opens down 8.7%. Shenzhen Component and Chinext index down 9.1%. The day ahead should see elevated volatility in Risk-Assets and a bid for Safe Haven assets.

The Reserve Bank of Australia (RBA) is the sole major central bank that will meet this week but that doesn’t mean the calendar is light. The US employment report will reveal whether the recent ‘cracks’ in the labor market were just outliers in an otherwise healthy trend or early signs of weakness. More broadly, risk sentiment will remain sensitive to any virus-related news.

FX MOVES

U.S. Dollar Index, -0.51%, 97.36
USDJPY, -0.54%, $108.39
EURUSD, +0.55%, $1.1093
GBPUSD, +0.85%, $1.3206
USDCAD, +0.20%, $1.3236
AUDUSD, -0.51%, $0.6688
NZDUSD, -0.34%, $0.6465 

MARKET MOVES

S&P500, -1.77%, 3,225.52
Nasdaq, -1.59%, 9,150.94
Nikkei Futures, -1.18%, 22,700.0

WHAT HAPPENED YESTERDAY

CHINA’S CENTRAL BANK TO STABILIZE MARKETS

China’s central bank said it will inject 1.2 trillion yuan ($174 billion) worth of liquidity into the markets via reverse repo operations on Monday as its stock markets prepare to reopen amid an outbreak of a new coronavirus.

IMPACT: Chinese Yuan and the Aussie Dollar will weaken on the back of stimulatory measures by the PBOC, however, this may cushion fears of a rout in Chinese and Emerging Markets going forward as the Chinese central bank seems determined to support markets and any abatement in the risk premium may actually cause Chinese and Emerging Markets to rebound.

CORONAVIRUS IMPACT ON CHINA’S MANUFACTURING NOT ‘YET FULLY MANIFESTED’

China’s factory activity cooled slightly in January, although officials and analysts warned the drop does not account for the coronavirus outbreak, which is set to test an economy already growing more slowly. The official purchasing managers’ index (PMI) dropped to 50.0, the National Bureau of Statistics (NBS) said on Friday, has remained steady at 50.2 for the last two months of 2019 following a reading of 49.3 in October. The non-manufacturing PMI – a gauge of sentiment in the services and construction sectors – strengthened to 54.1 from 53.5 in December.

IMPACT: Many factories in China remain shut after the Lunar New Year holiday was extended, and it is unclear when normal business will resume in the world’s second-largest economy, with the World Health Organisation declaring the coronavirus outbreak a public health emergency on Thursday, a decision which may amplify the economic risks to China’s economy. A reading above 50 suggests an expansion in economic activity and below 50 a contraction. Any slowdown in the Chinese economy will weaken sentiment on the CNH.

CANADA GDP BEATS AS COLD SNAP TRIGGERS HIGHER UTILITY USE

The Canadian economy grew by a surprise 0.1% (consensus 0.0%) in November, driven by a boost in utility use because of an unexpected cold snap in central Canada. Utilities rose 2.1%, the largest upward contributor to monthly GDP. The construction sector also stood out in the report, up 0.5% on the month, with growth in all subsectors including residential and commercial. The central bank also cut its fourth-quarter annualized growth forecast to 0.3% from 1.3% in October and said it would be closely monitoring developments in consumer spending, the housing market, and business investment.

IMPACT: The better-than-expected GDP reading may ease speculation the Bank of Canada will cut interest rates to counter the recent slowdown in the domestic economy, though the report is clouded by transitory events. The less likelihood of an interest rate cut tends to strengthen the CAD.

SENTIMENT

FX

US DOLLAR (positive)
JAPANESE YEN (positive)
EURO (neutral)
STERLING (neutral)
CANADIAN DOLLAR (negative)
AUSTRALIAN DOLLAR (neutral)
NEW ZEALAND DOLLAR (neutral)
SWISS FRANC (positive)

MARKETS

S&P 500 (neutral)
NIKKEI 225 (neutral)
SHANGHAI COMPOSITE (neutral)
ASX 500 (neutral)

COMMODITIES

OIL (negative)
GOLD (positive)
COPPER (negative)

DAY AHEAD 

As of Fri 31 Jan, Singapore Time zone UTC+8

Markets will continue to be affected by coronavirus development, Asian Risk Assets along with its associated trade partners like Australia, New Zealand, and Emerging Markets will be sensitive to any potential economic impact.

FX MOVES

U.S. Dollar Index, -0.20%, 97.86 (Sentiment: Negative)
USDJPY, -0.10%, $108.89 (Sentiment: Neutral)
EURUSD, +0.16%, $1.1028 (Sentiment: Neutral)
GBPUSD, +0.50%, $1.3086 (Sentiment: Neutral)
USDCAD, +0.08%, $1.3209 (Sentiment: Positive)
AUDUSD, +0.25%, $0.6722 (Sentiment: Neutral)
NZDUSD, -0.66%, $0.6484 (Sentiment: Neutral)

MARKET MOVES

S&P500, +0.31%, 3,283.66 (Sentiment: Positive)
Nasdaq, +0.26%, 9,298.93 (Sentiment: Positive)
Nikkei Futures, -0.99%, 23,128.0 (Sentiment: Positive)

WHAT HAPPENED YESTERDAY

STERLING GAINS AFTER BoE LEAVES INTEREST RATES UNCHANGED

Sterling gained on Thursday after the Bank of England held interest rates at 0.75%, defying money markets that had seen a 50% probability of a cut to help the economy. Britain’s economy struggled at the end of 2019, prompting several policymakers to say this month they would vote for a rate cut unless data improved. Carney said earlier this month a case could be made for a precautionary cut. But economic momentum has shown signs of picking up since December’s general election, the BOE said, adding that signs of global stabilization also meant stimulus was not needed yet. The Monetary Policy Committee remained split 7-2 as before, with external members Michael Saunders and Jonathan Haskel again voting to lower rates.

IMPACT: Following the move, interest rate futures moved to almost price out a rate cut at the March meeting as well, reinforcing Sterling’s gains. Money markets are still pricing in a quarter-point reduction by September, however.

AMAZON’S ONE DAY SHIPPING PAYS OFF

Amazon.com Inc on Thursday posted holiday quarter results well above expectations as the expansion of its one-day shipping program came under budget and membership in its Prime loyalty club notched a 50% rise in two years. Amazon also forecasts operating income of up to $4.2 billion in the current quarter, down from $4.4 billion the year prior. Still, that appeared to assuage investor concerns about Amazon’s continued spending on fast delivery, which could have erased windfalls from e-commerce, advertising, and cloud computing sales.

IMPACT: Shares soared as much as 13% in after-hours trade, putting the online retailer back in the $1 trillion market capitalization club. If the share gain holds on Friday, it will be the biggest daily jump for Amazon since October 2017.

CHINA VIRUS DEATHS RISES, WHO DECLARES GLOBAL EMERGENCY

The death toll in Hubei, the Chinese province at the center of the epidemic, had risen to 204 and there were 9,692 cases of infection nationally as of Thursday, Chinese health authorities said. About 100 cases have been reported in at least 18 other countries, with no deaths outside China.

IMPACT: Foreign governments have been flying home their citizens from Hubei and holding them in quarantine, while airlines including Air France, American Airlines and British Airways have stopped flying to mainland China. Airline and Gambling Stocks will bear the brunt of the damage as Chinese travelers which constitutes a large segment will be missing. The outbreak poses the biggest epidemic threat to the airline industry since the 2003 SARS crisis, which led to a 45% plunge in passenger demand in Asia at its peak in April of that year, analysts said.

DAY AHEAD 

As of Thu 30 Jan, Singapore Time zone UTC+8

The Bank of England will announce its latest policy decision later today, BoE policymakers will be debating whether to cut interest rates or not. Expectations of an interest rate cut shot up earlier this month when Governor Mark Carney and two other monetary policy committee (MPC) members flagged lower rates. Their dovish views were reinforced by weak economic indicators for November/December. But more recent data has been somewhat more encouraging, and markets are now split about 50-50 as to whether the BoE will ease. Expect elevated volatility in Sterling today as markets price in BoE’s posturing towards future monetary policy decisions.

FX MOVES

U.S. Dollar Index, +0.09%, 98.06 (Sentiment: Negative)
USDJPY, -0.17%, $108.96 (Sentiment: Neutral)
EURUSD, -0.07%, $1.1014 (Sentiment: Neutral)
GBPUSD, -0.06%, $1.3020 (Sentiment: Neutral)
USDCAD, +0.33%, $1.3198 (Sentiment: Positive)
AUDUSD, -0.17%, $0.6751 (Sentiment: Neutral)
NZDUSD, -0.27%, $0.6528 (Sentiment: Neutral)

MARKET MOVES

S&P500, -0.09%, 3,273.40 (Sentiment: Positive)
Nasdaq, +0.06%, 9,275.16 (Sentiment: Positive)
Nikkei Futures, +0.35%, 23,240.0 (Sentiment: Positive)

WHAT HAPPENED YESTERDAY

FED HOLDS RATES STEADY

The central bank left the target for the fed funds rate unchanged at 1.50-1.75% and extended repurchase operations to April from January. Fed Chair Powell reiterated that monetary policy is appropriate and will remain so until something changes to alter the macroeconomic outlook. The Fed’s statement was little changed from the one issued after its December meeting, saying that the current federal funds rate was “appropriate to support the sustained expansion of economic activity,” including ongoing job growth and a rise in inflation to the central bank’s 2% target.

IMPACT: Aside from the repo extension, there were few surprises from the Fed, which may have contributed to the lack of enthusiasm in risk assets. Demand for Treasuries steadily increased after the Fed’s policy directive. The 2-yr yield declined four basis points to 1.42%, and the 10-yr yield declined five basis points to 1.59%.

LACKLUSTER AUSTRALIAN INFLATION

The consumer price index (CPI) rose 0.7% in the December quarter, higher than forecasts of a 0.6% increase, driven by gains in cigarettes, domestic holidays, travel, fuel and fruit prices. The annual pace rose to 1.8%, still below the floor of the Reserve Bank of Australia’s (RBA) 2-3% target band. Indeed, a key measure of core inflation was stuck at an even slower 1.6% marking four straight years below target.

IMPACT: This persistent weakness was one reason the RBA cut interest rates three times last year to an all-time low of 1.75%, and why markets are still pricing in at least one more easing. Aussie finished the day lower as a result of benign results.

CHINA VIRUS EVACUATIONS BEGIN

Foreign governments began flying their citizens out of China’s Hubei province, the epicenter of the coronavirus outbreak, as authorities said the death toll there had topped 160. The World Health Organization’s (WHO) Emergency Committee is set to reconvene behind closed doors in Geneva later on today to decide whether the rapid spread of the virus now constitutes a global emergency.

IMPACT: The effects of the virus are already weighing heavily on China’s economy, the world’s second-biggest, with companies cutting corporate travel and tourists canceling trips. Gambling and Travel stocks have fallen as a result.

MARKET WRAP 

28 Jan 2020 Market Wrap

U.S. Dollar Index, +0.03%, 97.97 (Sentiment: Neutral)
USDJPY, +0.29%, $109.16 (Sentiment: Neutral)
EURUSD, +0.04%, $1.1022 (Sentiment: Neutral)
GBPUSD, -0.23%, $1.3024 (Sentiment: Neutral)
USDCAD, -0.23%, $1.3163 (Sentiment: Higher)
AUDUSD, +0.02%, $0.6762 (Sentiment: Neutral)
NZDUSD, -0.10%, $0.6543 (Sentiment: Neutral)

MARKET MOVES

S&P500, +1.01%, 3,276.25 (Sentiment: Positive)
Nasdaq, +1.43%, 9,269.68 (Sentiment: Positive)
Nikkei Futures, +0.05%, 23,322.5 (Sentiment: Positive)

MARKET OUTLOOK: As for the coronavirus, there weren’t too many positive developments on the situation, as more cases and deaths were confirmed in China with additional travel restrictions enacted. Investors, however, appeared placated by the fact that it remained under control in the U.S. Any negative impact to earnings growth, thus, might be transitory or minimal. U.S. stocks bounced back on Tuesday, recovering a bulk of yesterday’s losses as investors bought the dip amid waning concerns.

SUMMARY OF NOTABLE EVENTS 

U.S. CONFERENCE BOARD’S CONSUMER CONFIDENCE INDEX

The Conference Board’s Consumer Confidence Index rose to 131.6 in January (consensus 128.0) from an upwardly revised 128.2 (from 126.5) in December. The key takeaway from the report is that the survey group remains optimistic about the overall situation, as nearly 41% of respondents described business conditions as good while 49% of respondents believed that jobs are plentiful.

APPLE EARNINGS

Strong iPhone holiday sales deliver record-breaking revenue for Apple. Fiscal first-quarter (FQ1) revenue: $91.8 billion. Analysts expected $88.37 billion. FQ1 earnings per share (EPS): $4.99. Analysts expected $4.55. Fiscal second-quarter guidance (FQ2): $63 billion to $67 billion. Analysts expected $62.33 billion. Shares of Apple, which have increased roughly 8% in the weeks leading up to the announcement of its fiscal first-quarter results, were up around 2% in after-hours trading Tuesday following the earnings results.

U.S. MARKETS

All 11 S&P 500 sectors contributed to the rally, including five that rose at least 1.0%. The information technology sector (+1.9%) led the charge on the back of Apple (AAPL 317.69, +8.74, +2.8%), which was set to release its earnings report after the close. Shares got an added lift on reports Apple asked suppliers to raise iPhone production levels by more than 10% over the last year. U.S. Treasuries gave back some of their recent gains, sending yields modestly higher. The 2-yr yield increased three basis points to 1.46%, and the 10-yr yield increased four basis points to 1.64%. The U.S. Dollar Index finished flat at 97.97. WTI crude rose 0.7%, or $0.39, to $53.40/bbl.