10-Feb-2020

1) Wall Street retreats despite strong jobs data
2) Asia Open: Stage 3, timing a potential turning point is “easier said than done.”
3) Aussie Dollar falls to lowest level since 2009

1) Wall Street retreats despite strong jobs data

The virus effect appears to be exerting a stronger influence on equity indices than a stellar jobs report, as reported deaths from the virus top SARS totals.

• The US30 index snapped a four-day winning streak despite reports showing a healthy labour market
• The 55-day moving average has risen to at 28,555 while the 100-day moving average is at 27,884
• The US economy added 225,000 jobs in January, beating estimates of just 160,000. The unemployment rate edged up to 3.6% from 3.5%, partly due to a higher participation rate. There are no major US data releases scheduled for today but Fed’s Bowman is due to speak.
• The Germany30 index looks set to decline for a second consecutive day today as the corona virus impacts risk appetite
• The index is above the 55-day moving average at 13,293 while the 100-day provides longer-term support below at 13,010
• Euro-zone Sentix investor confidence probably dipped to 4.0 this month from 7.6 in January, according to the latest survey of economists, mostly due to the virus effect.
• The attempted rebound in oil markets last week appears to be short-lived with prices looking poised to slide for a third straight day
• Oil prices opened below the 55-month moving average this month for the first time in a year. That moving average is at $53.12 today. The 100-month moving average has crossed below the 200-month moving average

Tomorrow sees the release of weekly crude oil stockpiles data from the American Petroleum Institute (API). Last week saw an addition to inventories of 4.2 million barrels.

2) Asia Open: Stage 3, timing a potential turning point is “easier said than done.”

The first stage of the market fallout from the virus outbreak was about positioning adjustment. The second stage, which is the reaction to policy guidance, has been underway since last Monday when the PBoC began turning the stimulus taps on. The third step, timing a potential turning point for Asia macro, however, remains less clear, pending clarity on peak virus outbreak, and broader appraisal of the economic fallout above and beyond just tourism. So, with the thought that global central banks are more than willing to cover the markets’ back, the extent to which investors look through weak China data in the coming weeks will help determine whether a rebound trade has the legs to run.

China returns from the holidays with global equity markets trading on the back foot. But the decline in comprehensive economic data concerning the extent China’s economy comes back on-line should not be underestimated. On the one hand, coronavirus cases and deaths have stabilized. In contrast, some companies (e.g., Toyota, Foxconn) have announced they will remain shut even after the end of the lunar year-end holiday.

US equities were weaker Friday, as a robust US payrolls report was unable to deflect renewed concerns around the coronavirus. Traders moved into sell first, ask question later mode when Singapore raised its alert level after three cases of the virus were confirmed. At the same time, in the US, four passengers from a cruise ship docked in New Jersey were hospitalized on coronavirus concerns, which continues to raise fast-spread virus concerns beyond China borders.

While a more fundamental issue is one about how much the market can believe the data. But knowing that the damage is done in China, and the virus data seems to be peaking, so the numbers that the market is apt to take most at face value are the infections outside China, and in particular, the relatively low mortality rates. Which should be viewed positively.

On Sunday, data was released, indicating there is a downward trend in newly reported coronavirus cases in China. If the numbers are accurate, and the Zhong Nanshan scenario holds implying peak virus would hit last week, that would be tremendously useful news fore regional health concerns and then, of course, for local markets. This could see some long USDASIA gamma flush this morning and provide some relief to China proxies

However, commodities remain laggards with some Chinese importers even starting to declare force majeure. And China growth-proxy currencies like the AUD closed at its lowest level since March 2009 on Friday after RBA Governor Lowe cited a higher risk to growth from the coronavirus compared to SARS.

Beyond the China narrative, there has been an increased demand for TWSE index protection. In Japan, price action was heavily skewed lower led by internet, financials, electrical appliances. And Australian, “macro sensitive” mining stocks went on offer.

While outside of equities, Iron Ore bulls reduced longs, and fast money sold copper and bought Silver.

This week will be a bit of gut-check time for those playing the Asia macro rebound trade. But while a plethora of uncertainties remains, one sure thing is that the mother of all stimulus measures will get laid down by the PBoC, but will it be enough remains the question as no one appears in much of a rush to put risk back on out of the gates this morning.

3) Aussie Dollar falls to lowest level since 2009

Friday’s session saw the Australian Dollar fall from 0.6720 to 0.6662 against the US Dollar, representing its lowest level since the GFC. The AUD, which continues to trade as a proxy for Chinese and global growth, has been burdened by the ongoing Coronavirus situation as the number of confirmed cases continue to rise at a steady pace. Although we did have less dovish commentary from RBA governor Lowe last week, it was not enough to support the AUD as it remained firmly under the 0.67 handle. Lowe pointed to financial stability concerns as a core reason for the central bank’s reluctance to ease rates further this month.

Monday’s session is light on the data front as we expect the AUD to continue to trade on global risk sentiment and in particular, developments in the Coronavirus situation. Analysts will be looking to Chinese inflation and lending data for January as a gauge of how the Chinese economy was tracking before the virus outbreak. From a technical perspective, initial supports can be seen at 0.6662 with any moves lower expected to find further support around 0.6650. On the topside, resistance is expected on moves approaching 0.67 and 0.6724.

Market sentiment continues to deteriorate amid growing concerns around the Coronavirus epidemic gripping Asia. Although we did see some stronger than expected US employment data out of the worlds largest economy on Friday, we saw classic risk off flows as traders continued to brush aside economic data in favor of risk sentiment. US non-farm payrolls were much stronger than expected, coming in at 225K for the month whilst the unemployment rate continues to remain at historical lows.

Safer currencies rose on Friday with the JPY the best performer on the day, ranging between 1.954 and 110 against the USD. The USD index was also up on the day with the EUR falling 40 points from 1.0980 to 1.0942, representing a four-month low. In line with risk sentiment, commodity prices were soft as Crude fell 1.1%, copper 1.3% whilst gold rose 0.2%. With a slow start to the week on the data front, we’re expecting market pricing to continue to take its cues from the evolving coronavirus situation, with growth correlated currencies AUD and NZD to be particularly vulnerable to developments. Notable risk events later in the week are not only the RBNZ’s monetary policy statement on Wednesday but also UK Q4 GDP numbers due out Tuesday, testimony from Fed Chair Powell on Thursday and US CPI numbers due out on Friday.