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.

MARKET WRAP 

27 Jan 2020 Market Wrap

As of Tue 28 Jan, Singapore Time zone UTC+8

FX MOVES

S&P500, -1.57%, 3,243.63 (Sentiment: Neutral)
Nasdaq, -1.89%, 9,139.31 (Sentiment: Neutral)
Nikkei Futures, -2.87%, 23,117.5 (Sentiment: Neutral)

MARKET OUTLOOK: The narrative surrounding the state of the Coronavirus epidemic has been the key driver of risk appetite. Should more Chinese cities go into lockdown and the contagion effect of the virus spreads, markets will be pricing in the economic impact of reduced trade and the impact on Global GDP.

SUMMARY OF NOTABLE EVENTS 

DEATHS CLIMB ABOVE 80 AS CHINA RECORDS NEW CASES OF CORONAVIRUS

Stocks tumbled and oil prices fell on Monday as the virus spread worried investors around the globe. The S&P 500 fell 1.57%, with shares of airlines and companies dependent on tourism from China particularly hard hit. It was the sharpest decline since Oct. 2, when the trade war was fanning fears of a slowdown. American Airlines dropped more than 4% in early U.S. trading, and Wynn Resorts, which operates casinos in Macau, a special administrative region of China and a gambling haven for Chinese high rollers, dropped more than 7%. The price of Oil dropped, on fears that demand could slip. Renminbi and currencies of China’s associated trading partners like the Aussie & Kiwi Dollar fell alongside it, while investors moved into safe havens like gold.

GERMAN IFO BUSINESS CLIMATE INDEX DISAPPOINTS

German business morale deteriorated unexpectedly in January as the outlook for services darkened, a survey showed on Monday, suggesting that Europe’s largest economy got off to a slow start in 2020 after narrowly avoiding a recession last year. The headline German IFO Business Climate Index came in at 95.9 in January, weaker than last month’s 96.3 and missing the consensus estimates pointing to a reading of 97.0. The lackluster print knocked Euro off to a session low of 1.1017. The spot remains vulnerable, as the safe-haven appeal of the US Dollar remains underpinned amid growing concerns over the China coronavirus outbreak.

U.S. MARKETS

All 11 S&P 500 sectors finished in negative territory. The energy (-2.8%) and information technology (-2.4%) sectors were hit the hardest, while the defensive-oriented consumer staples (-0.3%) and utilities (-0.3%) sectors posted modest losses. Energy stocks were undercut by another 2.2% drop in WTI crude ($53.01/bbl, -1.20).

MARKET WRAP 

As of Fri 24 Jan, Singapore Time zone UTC+8

MARKET OUTLOOK :  The S&P 500 lost as much as 0.6% on Thursday amid concerns about growth and valuation, but an intraday rebound gathered steam after the World Health Organization declined to declare an international virus alert or public health emergency for the coronavirus. The benchmark index finished the session up 0.1%.

SUMMARY OF NOTABLE EVENTS 

EUROPEAN CENTRAL BANK MONETARY POLICY

The ECB kept its ultra loose monetary policy rates unchanged on Thursday, said it would reconsider the inflation target that defines is core price stability mandate. In ECB’s Q&A, Lagarde commented that Governments with fiscal space should be ready to act and if growth does not pick up, they have to decide on which part of the yield curve they want to operate on. The fall in the euro through the press conference shows that the market was leaning towards something hawkish, at least on negative rates. Instead Lagarde was pushing governments to spend and not offering any hint about a hawkish shift.

NEW ZEALAND INFLATION PRINT 

The New Zealand inflation data for Q4 came in at 0.5% q/q (expected 0.4%) and 1.9% y/y (expected 1.8%). Kiwi popped higher as a result.

CHINA VIRUS DEATH TOLL INCREASES TO 25 AS TRAVEL LIMITS EXPANDED

China reported that deaths from a new coronavirus rose to 25 as it rushes to halt the SARS-like disease, even as the World Health Organization stopped short of calling the infection a global health emergency. Restrictions on travel and public gatherings have been implemented in Wuhan, the city in central China where the virus was first detected, as well as in several nearby municipalities. Hong Kong and Beijing are canceling planned holiday activities, according to local officials and state media. Investors took a cautious stance ahead of a week long trading break, pushing the Shanghai Composite down by -2.80%.

MARKET WRAP 

As of Thu 23 Jan, Singapore Time zone UTC+8

FX MOVES

U.S. Dollar Index, -0.03%, 97.50 (Sentiment: Negative)
USDJPY, -0.13%, $109.74 (Sentiment: Neutral)
EURUSD, +0.11%, $1.1096 (Sentiment: Neutral)
GBPUSD, +0.72%, $1.3146 (Sentiment: Neutral)
USDCAD, +0.52%, $1.3137 (Sentiment: Positive)
AUDUSD, -0.03%, $0.6843 (Sentiment: Neutral)
NZDUSD, -0.02%, $0.6596 (Sentiment: Neutral)

Market Moves

S&P500, +0.03%, 3,321.75 (Sentiment: Positive)
Nasdaq, +0.14%, 9,383.77 (Sentiment: Positive)
Nikkei Futures, -0.26%, 23,797.5 (Sentiment: Positive)

Market Outlook : European Central Bank is unlikely to either do or say much when it meets later today. If there is any change in tone, it might be towards a less dovish one, given the signs of ‘green shoots’ in the data and deescalating political tensions. Even in this case though, any upside reaction in the euro is unlikely to be large. Rather, a much bigger force in determining the euro’s broader direction will be the preliminary PMIs for January, which are due on Friday. This is probably the most important data set for the direction of monetary policy. If they reaffirm that the economy is getting its feet under it, that could help establish a floor under the Euro – otherwise, any more weakness could reignite concerns about a potential recession.

SUMMARY OF NOTABLE EVENTS

CANADIAN MONETARY POLICY

The Bank of Canada maintained its key overnight interest rate at 1.75% as expected on Wednesday but opened the door to a possible cut should a recent slowdown in Canadian economic growth drag on. The central bank slashed its forecast for fourth quarter annualized growth to 0.3% from 1.3% in October. It also pegged annualized growth for the first quarter of 2020 at 1.3%, down from a previous internal forecast of 1.7%. Money markets now see about a 20% chance of a rate cut in March. The Canadian Dollar fell in reaction as the most hawkish central bank is signaling a dovish alley.

APPLE ASKS TAIWAN SEMI TO INCREASE A13 CHIP PRODUCTION TO KEEP UP WITH IPHONE 11 DEMAND

IBM beat earnings estimates and issued upside FY20 EPS guidance, but the resilience in Apple (AAPL 317.70, +1.13, +0.4%) and the semiconductor space should not be overlooked. Bloomberg reported that Apple will begin producing low-cost iPhones next month and asked Taiwan Semi (TSM 58.35, +0.11, +0.2%) to increase its chip supply to meet strong iPhone demand.

CHINA’S WUHAN SHUTS DOWN TRANSPORT AS GLOBAL ALARM MOUNTS OVER VIRUS SPREAD

Deaths from China’s new flu-like virus rose to 17 on Wednesday, with more than 540 cases confirmed, leading the city at the center of the outbreak to close transportation networks and urge citizens not to leave as fears rose of the contagion spreading. Any widespread contagion will weigh on risk assets as businesses will eventually be affected if people choose to stay home.

CURRENCY MARKET WRAP 

As of Wed 22 Jan, Singapore Time zone UTC+8

U.S. Dollar Index, 0.00%, 97.61
USDJPY, -0.25%, $109.91
EURUSD, -0.09%, $1.1085
GBPUSD, +0.27%, $1.3046
USDCAD, +0.18%, $1.3072
AUDUSD, -0.37%, $0.6848
NZDUSD, -0.21%, $0.6595

Asian equities were hit the hardest on Tuesday, as the virus outbreak originated in China, while the initial selling in the U.S. stock market was modest. The virus, which can be transmitted between people and has no current vaccine, fostered a narrative that economic activity could be slowed down by people deciding to refrain from public spheres like travel and shopping.

At a two-day rate review that ended on Tuesday, the BOJ kept its short-term interest rate target at -0.1% and a pledge to guide 10-year government bond yields around 0%. In a quarterly review, the BOJ also revised up its growth projection for the fiscal year beginning April 2020 to 0.9% from 0.7%, helped by the government’s fiscal package, and hiked its estimate for 2021.

The 2-yr yield fell four basis points to 1.52%, and the 10-yr yield fell seven basis points to 1.77%. The U.S. Dollar Index finished flat at 97.61. WTI crude declined 0.5%, $0.30, to $58.25/bbl.

STOCK MARKET WRAP 

S&P500, – 0.27%, 3,320.79
Nasdaq, -0.19%, 9,370.81
Nikkei Futures, -1.13%, 23,807.5

Cyclical sectors were among today’s laggards, particularly the S&P 500 energy (-1.9%), materials (-1.1%), and industrials (-1.1%) sectors. The latter was weighed by the disappointment in top-weighted Boeing. The rate-sensitive real estate (+1.1%) and utilities (+0.8%) sectors outperformed, as demand for Treasuries drove yields lower.

Other notable areas included the Dow Jones Transportation Average, which fell 1.8% amid weakness in the airline stocks, and the iShares U.S. Home Construction ETF (ITB 47.80, +0.60), which rose 1.3% on the idea that the lower Treasury yields will drive mortgage rates lower.

Separately, Tesla (TSLA 547.20, +36.70, +7.2%), Costco (COST 313.26, +8.58, +2.8%), Visa (V 207.29, +2.59, +1.3%), and Intel (INTC 60.55, +0.95, +1.6%) benefited from positive-minded analyst recommendations. Uber (UBER 37.60, +2.47, +7.0%) hit a five-month high after the company sold its food delivery business in India.

CURRENCY MARKET WRAP 

As of Tue 21 Jan, Singapore Time zone UTC+8

U.S. Dollar Index, -0.01%, 97.61
USDJPY, -0.02%, $110.17
EURUSD, +0.03%, $1.1094
GBPUSD, -0.05%, $1.3004
USDCAD, -0.15%, $1.3046
AUDUSD, -0.07%, $0.6877
NZDUSD, -0.13%, $0.6610

U.S. markets were closed for holidays on monday and there were no notable economic prints or news to drive risk sentiment.

IMF slashes Global GDP forecast for 6th consecutive time, warns “Climate Change” will hit economy. According to the IMF, the downward revision primarily reflects negative surprises to economic activity in a few emerging market economies, most notably India, where 2020 GDP is now expected to rise just 5.8% down from 7.0%, which means that in 2020 China will regain the title of the world’s fastest growing economy.

STOCK MARKET WRAP 

S&P500, – closed –
Nasdaq, – closed –
Nikkei Futures, -0.09%, 24,027.5