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)