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!
