14-Feb-2020

1) Are Markets Are Falling Out Of Love With Stocks?
2) Gold: Mildly Positive Below $1580 As Risk Aversion Continues
3) Asia Update: A Bit Of A Mishmash But Overall Sentiment Is Still In Fine Fettle

1) Are Markets Are Falling Out Of Love With Stocks?

Wall Street’s wild ride saw stocks settle lower as uncertainty persists on the trajectory of the coronavirus and after the Fed signaled a bigger than expected withdrawal of liquidity with the repo operations.  Asia is headed for a mixed open after markets digest the new way China is calculating new coronavirus cases. Global stocks could still see some support on optimism that the virus peak could still be later this month is still supporting markets and after some positive strokes on the trade front were delivered by Trump and Xi.  The main catalyst for the case for higher equities remains the promise of global stimulus, but if China’s weakness extends to the second quarter, risk appetite will have trouble driving risky assets higher.

Fridays in 2020 have not been the best for stocks and we could see investors fall out of love of their bullish bets as everyone waits to have a clearer picture with the spreading of the coronavirus.

On the second day of the new methodology of confirming new cases, which includes imaging scans, Hubei reported 4,283 new cases, down from yesterday’s shocking jump of 14,840 cases which included prior days and weeks of cases.  China reported the total number of cases has reached 63,851 and that the death toll rose by 121 to 1,380.

2) Gold: Mildly Positive Below $1580 As Risk Aversion Continues

Gold remains firm around $1,578 during Friday’s Asian session. The extension of an increase in coronavirus cases seems to have favored the bullion’s latest run-up after cases shot the previous day on the change of diagnosing method.

As per the latest release from China’s Health Commission, the epicenter Hubei province reports 4,823 new cases on the second day of using the new method. The details suggest that the number of people in serious and critical condition rose to 9,638 from the prior readouts of 7,084.

While realizing the seriousness of the issue, Chinese officials are active enough to infuse financial markets while also not refraining to sack two key officials during the latest Politburo meeting. On Thursday, China’s President Xi Jinping suggested that the government’s efforts were beginning to have positive effects.

Elsewhere, the US Dollar stays firm around four-month high as upbeat data at home, as well as positive comments from the Fed officials, please the greenback buyers. It should be noted that the USD is noted to have a negative correlation with commodities.

On the political front, a rocket strike on the US military base in Iraq as well as the US Senate’s taming of President Donald Trump’s powers to go on a war with Iran offers a little direction to the precious metal.

That said, the US 10-year treasury yields decline two basis points to 1.60% whereas S&P 500 Futures trim 0.12% to 3,373 by the press time.

Moving on, investors will keep eyes on headlines from China and on the global geopolitics while the US Retail Sales and Michigan Consumer Sentiment Index could please the momentum traders afterward.

3) Asia Update: A Bit Of A Mishmash But Overall Sentiment Is Still In Fine Fettle

China’s Hubei province reports 4,823 new coronavirus cases on the second day of using a unique methodology. This should be a good thing, but since it’s still possible to spin that number any way you want, depending on your bias, it could be holding investors back a touch today.

A bit of a mixed bag today, its Friday after all, and the market is still a little cautious about secondary cluster outbreaks over the weekend. But what’s positive for risk, is the ASEAN market de-risking tone is multiple decibels lower than the feverish pitches from last Friday. The sentiment is still in fine fettle, but the traders have turned  positive mood music down a tad ahead of the weekend

However, I think there is light at the end of the virus tunnel. The virus impact is probably just a near term demand shock that has been mitigated by central bank liquidity. And since stocks are purely a momentum story at the moment juiced by the Fed repo remedy and the PBoC policy impulse, investors might feel they have little choice but to get on board or risk getting left at the station.

No demand for Asia currency risk reversal this morning, and traders could be taking this as a sign to punch their blue ticket and get on board the Yuan post-coronavirus manufacturing rebound train.  Also, there’s a pretty comforting policy backstop nudging the Yuan along, as lower rates and currency stability are encouraging foreign bond flows.

If the PBoC continues to limit RMB weakness, and with Bond market rallying, portfolio inflows should continue to remain active, especially given the ongoing bond index inclusion, such as to the GBI-EM, which will include China starting from the 28 February. This could be a bigger winner for long Yuan

And while probably not wise to go all-in long CNH, just yet local risk sentiment appears to be in a much better place today in comparison to last Friday while.