WHAT HAPPENED YESTERDAY

As of Tue 18 Feb, Singapore Time zone UTC+8

FX MOVES

U.S. Dollar Index, +0.05%, 99.15
USDJPY, +0.04%, $109.83
EURUSD, -0.05%, $1.0836
GBPUSD, -0.35%, $1.3005
USDCAD, -0.06%, $1.3238
AUDUSD, -0.24%, $0.6709
NZDUSD, -0.12%, $0.6438

MARKET MOVES

S&P500, MARKET CLOSED
Dow Jones, MARKET CLOSED
Nasdaq, MARKET CLOSED
Nikkei Futures, -0.46%, 23,390.0

SUMMARY:

U.S. markets were closed on the 17th Feb for Presidents’ Day. There were no notable economic data releases on Monday.

The FX market was quiet given that lack of drivers.

Tuesday started off on the wrong foot with Risk Assets selling off (S&P futures down 0.4%, and AUDJPY down almost 0.5%) after Apple said it will not meet its revenue guidance for the March quarter as the coronavirus outbreak slowed production and weakened demand in China. Also hurting market sentiment was news that the Trump administration is considering changing U.S. regulations to allow it to block shipments of chips to Huawei Technologies from companies such as Taiwan’s TSMC, the world’s largest contract chipmaker.

In China, the number of new COVID-19 cases fell to 1,886 on Monday from 2,048 the day before. The World Health Organization cautioned on Monday, however, that “every scenario is still on the table” in terms of the epidemic’s evolution.

APPLE UNLIKELY TO MEET REVENUE GUIDANCE DUE TO CORONAVIRUS

Apple’s manufacturing facilities in China have begun to reopen, but they are ramping up more slowly than expected, the technology company said in a statement to its investors. Global supplies of Apple’s iPhones will be limited as the sites work toward operating at full capacity, the company said. “These iPhone supply shortages will temporarily affect revenues worldwide,” the company said.

IMPACT: Apple’s stock is expected to face a knee-jerk reaction on Tuesday, when Wall Street reopens after the Presidents’ Day holiday. The importance of Apple cannot be understated as it is seen as a barometer for the health of the US economy and global supply chain/trade and consumer health. Apple’s warning caused a risk off sentiment in the FX and Commodity market as it is a stark reminder of the real economic impact of the virus. Many companies will have to slash guidance and the drag on the economy will be significant.

HUNDREDS OF AMERICANS FLOWN HOME ON CRUISE SHIP, 14 WITH VIRUS

More than 300 American cruise liner passengers, including 14 who tested positive for coronavirus, were flown home to military bases in the United States after two weeks under quarantine off Japan. The cruise ship Diamond Princess, which has more than 400 cases, has by far the largest cluster outside China.

Although U.S. officials had said passengers with coronavirus symptoms would not be repatriated, 14 passengers found at the last minute to have tested positive were permitted to board the planes. The U.S. State Department said the infected passengers were exposed to other passengers for about 40 minutes before they were isolated.

IMPACT: The virus is making landfall on North American soil, if the spread is not well contained, US Risk Assets will be repriced on contagion fears.

US MULLS CUTTING HUAWEI OFF FROM GLOBAL CHIP SUPPLIERS

The Trump administration is considering changing U.S. regulations to allow it to block shipments of chips to Huawei Technologies from companies such as Taiwan’s TSMC, the world’s largest contract chipmaker, two sources familiar with the matter said. New restrictions on commerce with China’s Huawei are among several options to be considered at high-level U.S. meetings this week and next. The chip proposal has been drafted but its approval is far from certain, one of the sources said.

IMPACT: To target global chip sales to Huawei, U.S. authorities would alter the Foreign Direct Product Rule, which subjects some foreign-made goods based on U.S. technology or software to U.S. regulations. Under the draft proposal, the U.S. government would force foreign companies that use U.S. chip-making equipment to seek a U.S. license before supplying Huawei – a major expansion of export control authority that could anger U.S. allies worldwide. This is an escalation of the tensions between US & China and will be negative for risk sentiment.

The Commerce Department declined to comment on the proposal.

DAY AHEAD

UK Jobs figures are up first later today and after last month’s surprise jump in employment growth, investors will be looking to see if a similar momentum was maintained in the three months to December. Wage growth will be closely monitored too given the recent weakness in consumer spending.

ZEW Economic Sentiment index for Eurozone and Germany will likely reaffirm the gloomy outlook for the region. EUR continues to trade heavy as it has been in recent days.

Australia’s labor market will be eyed tomorrow as quarterly wage growth figures are due and the latest employment report is out on Thursday. With the Reserve Bank of Australia looking increasingly reluctant to make deeper cuts to interest rates, the labor market indicators will test policymakers’ economic optimism.

Apart from the devastating bushfires that so far do not appear to have notably dented growth, Australian businesses have also had to grapple with the coronavirus epidemic, which is bound to disrupt trade with China – Australia’s biggest trading partner. The Australian dollar has bounced off 11-year lows on hopes that the outbreak may be slowing.

SENTIMENT

OVERALL SENTIMENT: 

Risk sentiment is starting to weaken as the economic impact of the COVID-19 is starting to show. Expect this to continue.

FX

MARKETS

TRADING TIP

Conviction is a dangerous thing…

Many size their trades according to the strength of their conviction. The stronger the conviction they have in a trade, the bigger risk they will take. This is also why macro traders who lose everything they have typically lose it all on one trade which they are willing to bet everything on. 

Their conviction that this is the best trade that must have on is likely just before it all goes to zero for them! For that reason, it is imperative for every trader to have a risk framework which protects them from risking it all on one trade, no matter how strong their conviction may be. 

Always remember, no matter how good you are, it is a certainty you will be wrong about the markets some day!

WHAT HAPPENED YESTERDAY

As of Fri 17 Feb, Singapore Time zone UTC+8

FX MOVES

U.S. Dollar Index, -0.03%, 99.09
USDJPY, -0.05%, $109.75
EURUSD, -0.08%, $1.0832
GBPUSD, 0.00%, $1.3047
USDCAD, -0.11%, $1.3253
AUDUSD, -0.06%, $0.6715
NZDUSD, +0.06%, $0.6441

MARKET MOVES

S&P500, +0.18%, 3,380.16 
Dow Jones, -0.09%, 29,398.08
Nasdaq, +0.20%, 9,731.18 
Nikkei Futures, -0.67%, 23,630.0

SUMMARY:

The FX market was range-bound yet again, with most pairs trading in a tight range. A move of note was the SGD weakening on the PM’s comments that the economic impact of the COVID-19 will be worse than that of SARS. USDSGD crept 0.3% higher on the day to close at the highs of the year.

The stock market wavered between modest gains and losses on Friday, ultimately closing little changed to preserve the week’s solid gains. The S&P 500 (+0.2%) and Nasdaq Composite (+0.2%) eked out small gains, while the Dow Jones Industrial Average (-0.1%) and Russell 2000 (-0.4%) edged lower. Separately, the White House is considering tax incentives for middle-class Americans to purchase stocks, according to CNBC. The package could be unveiled in early fall prior to the presidential election.

U.S. Treasuries had a good session, driving yields lower across the curve. The 2-yr yield declined five basis points to 1.42%, and the 10-yr yield declined three basis points to 1.58%. The U.S. Dollar Index increased 0.1% to 99.12. WTI crude rose 1.0%, or $0.53, to $51.93/bbl.

US ECONOMIC PRINTS

RETAIL SALES

Total retail sales increased 0.3% m/m in January, as did retail sales, excluding autos. Both were in-line with expectations. There were slight downward revisions to the December data. The key takeaway from the report is that discretionary spending was modest in January, which will contribute to a sense that Q1 GDP growth is apt to be modest even without any impact from the coronavirus.

INDUSTRIAL PRODUCTION

Industrial production declined 0.3% m/m in January, as expected, following a downwardly revised 0.4% decline (from -0.3%) in December. Total capacity utilization was 76.8%, as expected, following an upwardly revised 77.1% (from 77.0%) in December. The key takeaway is that the weakness in production stemmed largely from a drop in production at Boeing and warmer-than-normal temperatures that reduced heating demand and weighed on the output of utilities.

UNIVERSITY OF MICHIGAN CONSUMER SENTIMENT

The preliminary University of Michigan Index of Consumer Sentiment for February increased to 100.9 (consensus 99.2) from the final reading of 99.8 for January. That was just shy of the expansion peak of 101.4 seen in March 2018. The key takeaway is that positive consumer attitudes continue to be underpinned by a favorable move of the outlook, which is tied in large part to feeling of job security and income growth prospects.

IMPACT: US economic prints were mostly inline with expectations, reinforcing the theme that North America continues to be a pocket of economic strength.

GERMAN ECONOMY STAGNATES

The German economy stagnated in the fourth quarter due to weaker private consumption and state spending, data showed on Friday, renewing fears of a recession just as Chancellor Angela Merkel’s conservatives are preoccupied with a search for a new leader. The outlook for the German economy is also darkened by uncertainties linked to Britain’s Jan. 31 exit from the European Union as well as a threat by U.S. President Donald Trump to impose higher tariffs on car imports from Europe. Germany’s DIHK Chambers of Industry and Commerce said the quarterly stagnation should be a wake-up call for the government to increase investments and cut corporate taxes.

IMPACT: Europe continues to struggle coming to an agreement on a fiscal stimulus package that will boost its waning manufacturing sector. The EU’s push towards carbon free initiatives will put pressure on Germany’s traditional automobile industry and the EU will need to come to a consensus in time on what kind of monetary policy they want to use to ensure economic stability.

TRUMP ADMINISTRATION CONSIDERS PROPOSING TAX FREE INVESTING

The Trump administration is considering making it possible for Americans to invest more in the stock market on a tax-free basis, according to a CNBC report on Friday citing four unnamed administration officials. Households earning up to $200,000 a year could invest $10,000 on a tax-free basis outside a 401(k) retirement account in one proposal under consideration, the report said.

Friday’s report is another instance of the White House hinting at fresh tax cuts from President Donald Trump that would come before the November election. Last year, economic adviser Larry Kudlow said “tax cuts 2.0” might come during Trump’s re-election campaign.

IMPACT: This piece of news is bullish for risk assets as it’s a form of fiscal stimulus. By leveraging on a potentially massive pool of unencumbered public liquidity and the conditioning that every dip will be supported by central banks, asset prices might continue higher as American savers will want to take part in a secularly bullish stock market.

DAY AHEAD

Expect thinner markets as the US markets are closed for Presidents’ Day. The week started off with weaker than expected Q4 GDP from Japan (actual annualized rate of -6.3% vs expected -3.7%, with previous print revised lower from 1.8% to 0.5%). Data showing that the economy was slowing even before the COVID-19 hit is not a good sign. 

The preliminary PMIs for February will take center stage this week as they will provide the first insight into the possible impact of the coronavirus on the global economy. The flash releases in the Eurozone, Japan, the United Kingdom, and the United States should reveal how businesses outside of China have been affected by the outbreak with the risk that runaway equity markets may be handed a tough reality check. In other data, Australian employment and Canadian and UK retail sales will be watched closely, while in Japan, fourth-quarter GDP numbers are likely to renew pressure on policymakers for additional stimulus measures.

SENTIMENT

OVERALL SENTIMENT: 

Risk sentiment should be neutral on the day without the usual boost from the positive price action from the US stock markets. Volatility remains low but caution on the growing negative impact of the COVID-19 situation will continue to gain traction. EUR remains weak and rallies will be met with selling.

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 (-ve, -ve, 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

It is time to prepare…

Contrary to popular belief, successful traders don’t tend to spend their days clicking away and trading like maniacs. Unless, of course, you are a high frequency trader, and even then, the clicking and trading are mostly done by algorithms. 

The days of trying to trade frequently in the hope of making a profit are pretty much over as we are now living in the age where algorithms can outperform humans when it comes to things like this. Much of the time is spent, instead, on preparing for the next trading opportunity. 

This is especially true when volatility is low. Environments like these tend to lead to careless and complacent trades. Low volatility environments are the best time to do the required homework (improving your risk framework, money management process, etc) and be prepared for the opportunities that are bound to appear in time to come. 

Get prepared and be ready!

WHAT HAPPENED YESTERDAY

As of Fri 14 Feb, Singapore Time zone UTC+8

FX MOVES

U.S. Dollar Index, +0.05%, 99.10
USDJPY, -0.28%, $109.78
EURUSD, -0.29%, $1.0841
GBPUSD, +0.65%, $1.3046
USDCAD, +0.10%, $1.3263
AUDUSD, -0.27%, $0.6719
NZDUSD, -0.37%, $0.6441

MARKET MOVES

S&P500, -0.16%, 3,373.94
Dow Jones, -0.43%, 29,423.31
Nasdaq, -0.14%, 9,711.97
Nikkei Futures, -0.95%, 23,643.0

SUMMARY:

China reported a big jump in Coronavirus cases, the news was particularly disappointing because reports over the past few days had indicated that the rate of new cases was slowing down. The surge was due to a new diagnostic procedure, but White House officials reportedly remained skeptical of China’s information, thinking Beijing is still underreporting cases.

Risk currencies moved lower on the report, with Aussie and Kiwi weakening due to their close trading ties with China. The commodity currencies (AUD, NZD, CAD) will continue to be driven by the virus situation as any impact on global supply chains and trade will impact them the most. EUR continues to dribble lower as the break below 33-month low attracted more speculative sellers. GBP had a brief spate of volatility, jumping more than half a percent with the surprise announcement that the UK Chancellor, Savid Javid, will be replaced by Rishi Sunak. Sunak is seen as someone who will be more supportive of PM Johnson’s pro-business policies. 

The stock market slipped from record highs on Thursday following a spike in reported coronavirus cases in China, but it did close well off session lows. The S&P 500 lost 0.16% (down as much as -0.94%), the Dow Jones Industrial Average lost 0.4%, and the Nasdaq Composite lost 0.1%.

U.S. Treasuries finished mixed and little changed. The 2-yr yield increased one basis point to 1.45%, while the 10-yr yield declined one basis point to 1.62%. The U.S. Dollar Index increased 0.05% to 99.10. WTI crude rose 0.5%, or $0.23, to $51.40/bbl. 

In other news, the Federal Reserve Bank of New York will reduce the size of its overnight and term repurchase operations, according to Bloomberg. A judge reportedly placed a temporary block on Microsoft’s Pentagon cloud contract award following a lawsuit from Amazon.

US CONSUMER INFLATION

U.S. underlying consumer prices picked up in January, while the number of Americans filing claims for unemployment benefits rose slightly last week, suggesting the economy was stable enough for the Federal Reserve to keep interest rates on hold this year.

Consumer Price Index (CPI) increased just 0.1% m/m in January (consensus +0.2%) while core CPI, which excludes food and energy, increased 0.2%, as expected. The monthly increases left total CPI up 2.5% yr/yr, versus 2.3% in December. That is the largest yr/yr increase since October 2018. Core CPI was up 2.3% yr/yr for the fourth straight month. 

The key takeaway from this report is that it won’t spark any undue inflation/rate-hike concerns in the market given the stability of core CPI and the Fed’s seeming willingness to let inflation run a little hot to prevent inflation expectations from slipping too much.

IMPACT: Inflation prints coming largely within expectations will do little to aid a Dollar bid as the backdrop rhetoric from the Fed is that they are willing to allow inflation to run a little hot. By that measure, the impact of mildly rising inflation on the Dollar will not be received with much fanfare. 

FED TO WITHDRAW LIQUIDITY FROM REPO MARKET

The Federal Reserve is accelerating the pace of its withdrawal from short-term funding markets, even as investors’ demand for the central bank’s cash remains elevated. The new plan reduces the maximum amount the Fed will lend overnight each day from $120bn to $100bn — a change that will kick in on Friday. Moreover, the Fed will limit the amount it will lend in the form of two-week loans to $25bn as of Tuesday, from its current $30bn offering, and pare that amount even further in early March. At that point, the Fed will lend a maximum of $20bn on a two-week basis.

Analysts were primed for the shift, thanks to numerous reminders from chairman Jay Powell and other Fed officials in recent weeks that the central bank seeks to gradually transition away from active interventions in the repo market. The reductions were somewhat sharper than some had expected, however.

IMPACT: This is a key announcement and development to watch, as this is akin to the Fed gradually pulling the rug from under the markets. The melt-up in the market was largely due to the Fed’s response to the REPO crisis via a massive expansion of its balance sheet within a short period of time. With no signs of foreign buyers stepping back into the treasury market to buy up US Treasuries and finance US deficits, the withdrawal from the Fed may be followed by a sell-off in risk-assets.

LATEST VIRUS UPDATE: CHINA REPORTS BIG RISE IN CORONAVIRUS DEATHS

The big jump in China’s reported cases reflects a decision by authorities there to reclassify a backlog of suspected cases by using patients’ chest images, and is not necessarily the “tip of an iceberg” of a wider epidemic, a top World Health Organization official said on Thursday. Mike Ryan, head of WHO’s health emergencies program, said that more than 14,000 new cases reported in Hubei province overnight came after a change to include results from quicker computerized tomography (CT) scans that reveal lung infections, rather than relying just on laboratory tests to confirm cases.

IMPACT: The impact of the virus is still largely benign within the western hemisphere. Any significant revision in its impact and infected cases outside of China may cause a repricing of risk assets. 

DAY AHEAD

U.S. January retail sales figures will be announced later on today, these prints are seen as a reliable barometer of consumer spending. Retail sales are forecast to have increased by 0.3% month-on-month in January – the same pace as in the prior month. A miss in numbers will pose a downside risk for the Dollar given the recent strong gains as it would raise concerns about the health of the US consumer amid a weak global economic environment.

SENTIMENT

OVERALL SENTIMENT: Risk sentiment seems weaker than yesterday and we may see some reduction of risk positions ahead of the weekend. Volatility, especially in the currency markets, remains low for now but the dribble lower in EUR is attracting more sellers. Rallies in EUR/USD will likely be met by more selling if this continues.

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 (-ve, -ve, 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

The good old days are over…

This is a frequent lament of traders whenever they go through a period when markets are not going their way. There is only one constant in the markets, and that is that the market conditions will change. The ever-changing conditions are why there are opportunities for us to get into profitable trades. 

Though volatility in the currency markets is now very low by historical standards (the break of EUR/USD below the 33-month low this week is one of the lowest momentum breaks I can remember!), this does not mean this will always be the case. 

Even in low volatility environments, there will still be opportunities for trades with good risk vs reward characteristics to be put on. Don’t lose heart! If making money was easy, then everyone would be rich!

Are the good old days over? Far from it, the best days are yet to come. The first step to making it so is for you to believe it!

WHAT HAPPENED YESTERDAY

As of Thu 13 Feb, Singapore Time zone UTC+8

FX MOVES

U.S. Dollar Index, +0.30%, 99.01
USDJPY, +0.08%, $109.87
EURUSD, -0.37%, $1.0876
GBPUSD, +0.04%, $1.2958
USDCAD, -0.23%, $1.3257
AUDUSD, -0.01%, $0.6713
NZDUSD, +0.69%, $0.6447

MARKET MOVES

S&P500, +0.65%, 3,379.45
Dow Jones, +0.94%, 29,551.42
Nasdaq, +0.90%, 9,725.96
Nikkei Futures, +0.12%, 23,842.5

SUMMARY:

The snoozefest that is the FX markets is shown by the EUR/USD move yesterday. EUR broke below the 2018 low of 1.0879 but could only reach 1.0866. It’s been trading in a tight range of 1.0870-80 since and remains heavy. The only other move of note was the NZD strengthening on a statement that sounded more hawkish than the market expected.

The narratives driving stocks higher remained unchanged. Reports continued to indicate the slowing pace of the coronavirus, Fed Chair Powell’s congressional testimony assured investors that monetary policy will remain favourable, and the positive bias in stocks (including non-US markets) continued to fuel risk sentiment.

U.S. Treasuries remained out of favour amid the bullish bias in stocks. The 2-yr yield increased two basis points to 1.44%, and the 10-yr yield increased four basis points to 1.63%. The U.S. Dollar Index remained strong, closing 0.3% higher at 99.00.

NEW ZEALAND CENTRAL BANK HOLDS RATES, SURPRISES MARKETS WITH UPBEAT OUTLOOK

At its first meeting of the year, the Reserve Bank of New Zealand (RBNZ) flagged new risks to the economy from the coronavirus epidemic in China but expected any impact to be limited. While RBNZ held rates at 1% as expected, the statement omitted a line used in previous policy statements that it would add further monetary stimulus if needed. It also delivered noticeably more upbeat comments about employment and consumer prices. Orr said he expected the impact from the virus might only last about six weeks, based on guidance from other government departments, but that the RBNZ had room to adjust policy if the hit was greater. The central bank also raised the forecast path for rates this year to 1%, from 0.9% previously, removing the chance of a cut.

IMPACT: The New Zealand dollar rallied after the country’s central bank kept interest rates steady as expected but dropped a reference to the chance of further cuts, a hawkish move that suggested its easing cycle might be over. Markets quickly scaled back wagers on a further easing with a quarter-point move at the next meeting in March put at less than 10%. In this context of an increasingly hawkish central bank, any signs of economic green shoots emerging out of Australia or New Zealand will embolden the commonwealth currencies to gain ground against the Dollar.

FINAL DAY OF POWELL’S TESTIMONY

In testimony before the Senate Banking Committee, Powell said the Fed had two recession-fighting tools; buying government bonds, known as QE, and communicating clearly with markets about interest-rate policy, routinely considered as “forward guidance.”

“We will use those tools — I believe we will use them aggressively should the need arise to do so,” Powell said.

IMPACT: Powell assuring the Senate Banking Committee that the Fed stands ready to use accommodative monetary policy when the need arises was good news for risk assets, especially U.S equities which made all-time highs. It is key to note the nuances of his language, the fact that he used the term “aggressive” testifies to the Fed’s resolve to support risk assets, hence this makes shorting equities, in the long run, a futile and painful experience.

LATEST VIRUS UPDATE (AS OF 13TH FEB MORNING): CORONAVIRUS DEATH TOLL LEAPS IN HUBEI PROVINCE

Health officials in Hubei province said 242 people had died from the flu-like virus on Wednesday, the fastest rise in the daily count since the pathogen was identified in December, and bringing the total number of deaths in the province to 1,310. The previous record rise in the toll was 103 on Feb. 10.

The grim new tally came a day after China had reported its lowest number of new coronavirus cases in two weeks, bolstering a forecast by Beijing’s senior medical adviser for the outbreak there to end by April. But the 2,015 new confirmed cases reported in mainland China on Wednesday were dwarfed by the 14,840 new cases reported in Hubei alone on Thursday when provincial officials said they had adopted a new methodology for counting infections.

It was not immediately clear why the death toll rose so sharply, but the spike in newly infected was due to them reclassifying many of the “warded close contacts” of previously identified cases which dropped from 185K yesterday to 77K today.

IMPACT: Asian stock markets wobbled and the safe-havens of the Japanese yen, gold and bonds rose on Thursday morning as the number of new coronavirus cases at the outbreak’s epicenter jumped sharply. This drives home the point that the situation still remains volatile and the development of the viral outbreak will be the key driver of risk appetite, especially during the Asian session.

DAY AHEAD

U.S. will be reporting its inflation numbers later today. CPI inflation has been diverging from PCE inflation – the Fed’s preferred inflation metric – in recent months and the headline rate is forecast to have edged up further in January to 2.4% year-on-year. However, the core rate is expected to have moderated slightly to 2.2% y/y.

While a positive surprise wouldn’t necessarily mean policymakers would turn more wary about a build-up in inflationary pressures, it would nevertheless underline the relative robustness of the US economy compared to its peers and maintain upside pressure on the US Dollar.

SENTIMENT

OVERALL SENTIMENT: Risk sentiment remains strong with stocks continuing to trade well. Big jump in the number of cases in China only caused a temporary blip as the market becomes accustomed to the new normal. This is much like how you boil a frog. Watch the progression of the spread of the Covid-19 in Singapore as that will be instructive on how the infection will spread in a well-managed city that responds with reactive measures.

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

Losers average Losers…

WHAT HAPPENED YESTERDAY

As of Wed 12 Feb, Singapore Time zone UTC+8

FX MOVES

U.S. Dollar Index, -0.11%, 98.72
USDJPY, +0.09%, $109.85
EURUSD, +0.08%, $1.0920
GBPUSD, +0.32%, $1.2957
USDCAD, -0.19%, $1.3291
AUDUSD, +0.49%, $0.6719
NZDUSD, +0.33%, $0.6406

MARKET MOVES

S&P500, +0.17%, 3,357.75
Dow Jones, -0.00%, 29,276.34
Nasdaq, +0.11%, 9,638.94
Nikkei Futures, +0.84%, 23,838.0

SUMMARY:

The FX market remained largely range-bound. AUD crept higher throughout the day and posted gains of nearly 0.5% vs the USD as risk sentiment continue to stabilise, encouraged by the strength in various global stock indices.

The US large-cap indices started Tuesday’s session hitting intraday highs, but stocks steadily pulled back throughout the day amid a lack of follow-through buying interest. The S&P 500 (+0.2%) and Nasdaq Composite (+0.1%) still eked out closing records, while the Dow Jones Industrial Average (unch) finished flat.

The initial boost in the market was attributed to reports indicating that the rate of new coronavirus cases was slowing down and a view that monetary policy will stay favourable given the risks that remain due to the virus. Fed Chair Powell told the House Financial Services Committee yesterday that the Fed is “closely monitoring” the situation.

U.S. Treasuries finished on a lower note and barely moved during Fed Chair Powell’s congressional testimony. The 2-yr yield increased four basis points to 1.42%, and the 10-yr yield increased four basis points to 1.42%. The U.S. Dollar Index declined by 0.1% to 98.75. WTI crude rose 0.9%, or $0.44, to $50.01/bbl.

BRITISH ECONOMY STAGNATES AS BREXIT UNCERTAINTY HITS GROWTH

Britain’s economy stagnated in the final quarter of 2019 (expected), as political uncertainty, Brexit worries, a slowing eurozone and trade tensions all hurt growth. There was no growth in the last quarter of 2019 as increases in the services and construction sectors were offset by another poor showing from manufacturing, particularly the motor industry. Manufacturing output fell in the October-December period by the most since the third quarter of 2013, down 2.5% from the same period a year earlier, reflecting car plant shutdowns in November, when Britain faced the prospect of a no-deal Brexit.

Britain’s finance minister, Sajid Javid, is expected to give the country’s economy a boost with a spending increase in the government’s first post-Brexit budget on March 11.

IMPACT: The currency, GBP, did not fall off the bed in reaction to the lacklustre print because consensus has already expected the UK economy to stagnate. The expectation of fiscal stimulus to boost the economy provided supporting bids for GBP.

MONETARY POLICY CAN’T BE ONLY GAME IN TOWN

European Central Bank (ECB) President Christine Lagarde said on Tuesday that monetary policy “cannot and should not be the only game in town,” arguing that fiscal and structural policies also have to play their part in upholding the effectiveness of ECB’s stimulus measures. “The longer our accommodative measures remain in place, the greater the risk that side effects will become more pronounced,” Lagarde emphasized that fiscal and structural policies can boost productivity growth and lift growth potential, thereby underpinning the effectiveness of the ECB’s measures. “Indeed, when interest rates are low, fiscal policy can be highly effective,” she said.

She called for further efforts towards a “more complete” Economic and Monetary Union. The eurozone’s architecture has evolved substantially in recent years but “essential elements are still missing or incomplete,” Lagarde noted.

IMPACT: The call for fiscal stimulus in the EU continues and these calls by Lagarde usually foreshadow the actual measures that are to come out of the ECB. Fiscal stimulus in Europe will bode well for risk assets like Industrials and Manufacturing and might also put a bottom in for the Euro should the narrative start to gain traction amongst the EU members.

POWELL TESTIFIES

Federal Reserve Chair Jerome Powell told Congress on Tuesday that the U.S. economy is in a good place, even as he cited the potential threat from the coronavirus in China and concerns about the economy’s long-term health. “There is no reason why the expansion can’t continue,” he said, repeating the central bank’s view that its current target range for short-term borrowing costs, between 1.50% and 1.75%, is “appropriate” to keep the expansion on track.

Lawmakers also peppered Powell with questions ranging from the Fed’s injections of liquidity into short-term funding markets to climate change to the community reinvestment act (CRA) to the space economy. Powell’s answers stuck largely to the script. He defended the Fed’s plan to ease strains in the banking system with Treasury bill purchases and repo operations and said the central bank will likely reach an appropriate level of reserves around mid-year.

IMPACT: President Donald Trump reiterated his criticism that the Federal Reserve has kept interest rates too high and seemed to say the U.S. central bank’s chair, Jerome Powell, had hurt stock prices during his testimony to Congress on Tuesday. Powell stuck largely to script and any impact on the market was negligible.

DAY AHEAD

Considering the severity of the virus situation and the expected economic consequences from a disruption in global supply chains and trade, risk appetite remains healthy. Emerging Market currencies are getting some healthy bids and look to continue to strengthen against the Dollar.

Powell will appear before the Senate Banking Committee later today, as part of his two-day testimony.

SENTIMENT

OVERALL SENTIMENT: With more production facilities and ports reopening in China, market sentiment continues to improve. In the short term, the strength of the US market will continue to support the risk sentiment. The risk for the Asian economies remains. Singapore, in particular, is now facing travel restrictions from various countries as the spread of the virus shows no sign of slowing.

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

If trading was easy…

Trading is not complex. In fact, it is relatively simple. These days, anyone with an internet connection and a bit of money can readily open a trading account and start clicking away.

However, simple as it may be, it isn’t easy. If it was easy, millions of retail traders, who have picked up trading from watching a few YouTube videos or reading a few books, would be raking it in. Much like the fact that most people know that to be healthy and fit, one needs to eat healthy and nutritious food and do some form of exercise regularly. How many people though have the stomach (pun intended) to do this on a regular basis?

The way to become successful at trading is also not complex. If you find the right mentors or have access to the correct training methods, you will find that becoming a successful trader is a relatively simple process of forming good trading habits.

To achieve financial freedom through trading, you will need to form trading habits that will lead you to maximise your profits and minimise your losses. These habits, as is the case with many good habits, are not easy to form in the beginning, but it does get progressively easier. Start today!

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.