Capital Markets: "Apple's Warning Weighs on Sentiment"

From Marc to Market:

Overview: Apple's warning that it will miss Q1 revenue due to the knock-on effects of the coronavirus seemed to be a modest wake-up call to investors, who, judging from the equity market, were looking beyond. Equities have fallen, and bonds have rallied. Japan, Hong Kong, and South Korean stocks fell by more than 1%, and only China and Indonesia were able to post gains. The MSCI Asia Pacific Index fell for the fourth consecutive session. Led by information technology, materials, and energy, the Dow Jones Stoxx 600 is giving back yesterday's gains and a little more. The S&P 500 is off by around 0.3% in electronic trading. Benchmark 10-year bond yields are mostly 2-4 bp lower, though Korean bond yields tumbled 10 bp (to ~1.53%) as President Moon called for emergency measures, which renewed speculation of lower rates by the central bank. The US 10-year yield is near 1.54% and is approaching the recent low of 1.50%. The US dollar is firmer across major and emerging market currencies, though, as one might suspect, the yen and Swiss franc are holding in best. Sterling joined the advancers after its employment report. Gold is up about 0.5% (~$1589), a little more than $3 from the month's high. April WTI initially opened above last Friday's high (after yesterday's holiday) and has proceeded to sell-off through last Friday's lows. A break below $50.80 would undermine the technical outlook.

Asia Pacific
Japan's 5-year bond auction was 4.4-times oversubscribed, a little higher than last month's reception. Reports continue to point to strong foreign demand. The demand for Japanese government bonds, though, is not the same as the demand for yen. Dollar-based investors, for example, can buy JGBs and hedge the yen back into dollars and thereby earn a yield that is comparable and often better than US Treasuries. Japanese investors appear to like long-dated JGBs, which may be cheap relative to swaps or currency-hedged European bonds.

The minutes from the February 4 meeting of the Reserve Bank of Australia did reveal anything new to investors. The coronavirus represents a near-term material risk to the economy. It reviewed the case for a rate cut after three cuts last year. It judged that the risk of spurring more leveraging and house price increases offset the marginal benefits. The central bank's framing of the issue offers important insight to businesses and investors. Between the adverse shocks from the wildfires and the coronavirus, the market expected the trade-offs to shift toward the middle of the year and allow for the RBA to cut the cash rate to 50 bp.

Some estimates suggest that China is operating at around half of what it was before the Lunar New Year. However, other reports, looking at transportation data, see this month's traffic at around 15% of the level seen last year. The arrivals to Hong Kong in February have collapsed to about 3k a day, a drop of 99%, according to reports....

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If interested here is the Apple press release:
Apple Says It Does Not Expect To Meet the Revenue Guidance For the March Quarter Because of the Coronavirus Outbreak" (AAPL)