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
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