Tuesday, February 11, 2020

"New Calm in the Capital Markets Continues, Powell Moves to Center Stage"

From Marc to Market:
Overview: Investors are taking solace from reports indicating that the increase in the new coronavirus at ground zero (Hubei) is slowing. After the S&P 500 reversed early losses yesterday to close at new record highs helped keep the bullish sentiment intact. Benchmarks in Hong Kong, South Korea, Australia, and China rose for the sixth session. The Dow Jones Stoxx 600 gained a little more than 0.6% in morning turnover in Europe to a new record high, for its sixth rise in seven sessions. US shares are trading slightly firmer. The S&P 500 left a gap from last Wednesday's higher opening unfilled. It is found between roughly 3306.9 and 3313.8. A US court cleared the for T-Mobile to takeover Sprint for around $26.5 bln. Benchmark 10-year bonds are paring recent gains and yields are up 1-3 bp. The US 10-year remains below 1.60%. The dollar is trading with a heavier bias. Only the Swiss franc and Japanese yen (Tokyo markets were closed for a national holiday) were struggling. Emerging market currencies are also mostly higher, though the Turkish lira is the notable exception despite official efforts to discourage selling. Meanwhile, gold is consolidating its four-day advance, and WTI for March delivery is mainly within yesterday's range +/- 50 cents around $50 a barrel. In addition to less demand from China, the mild US winter has driven natural gas to four-year lows.

Asia Pacific
South Korea reported trade data for the first ten days of February.
It is one of the first reports that shed light on the economic fallout from the coronavirus. The headline of an almost 69.4% jump in exports, though, is a bit of a statistical quirk. It is flattered by the number of working days, and when the adjustment is made, it looks like a small decline. Average daily exports fell a little more than 3.%. Still, auto exports rose 114.5%, and semiconductor shipments rose almost 38%. Exports to China increased by about 36%, and shipments to the US rose by nearly 69%. Imports rose by 23%. Despite what appears to be an indication that South Korean exports held up better than feared, speculation is increasing that the central bank could cut rates when it meets on February 27. The benchmark rate is set at 1.25%, and about 10 bp of easing appears to be discounted. Note that CPI jumped to 1.5% in January from 0.7% in December as it continues to recovery a soft patch last August-October.

China's central government is encouraging businesses to resume, though local governments are mixed. Some reports estimate that about a third of companies have re-opened. The virus may promote a shift in some consumption habits, such as expediting the shift toward grocery deliveries, for example. It appears China's oil imports are off about 180k barrels per day since the Lunar holiday began....