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?
