Market Talk – January 31, 2020

ASIA:

Coronavirus, a pneumonia-causing virus, is beginning to disrupt the Chinese economy although it’s unclear whether the impact will extend to the full year. This is likely to push China to step up stimulus to counter the disruption in the economy. China’s Ministry of Finance said that as of 5 PM on Wednesday that finance ministries at all levels of government have issued 3.94 billion USD in subsidies for prevention and control of the virus. The People’s Bank of China also emphasized it will tweak its monetary policy tools to ensure sufficient liquidity in the wake of a nationwide holiday extension by three days. Chinese citizens were supposed to resume work on Friday, January 31, but the central government extended the holiday by three days, and several provinces have postponed the resumption of business to at least February 10. The nationwide delay alone could hit January and February industrial production by 1.5 to 2 percentage points, Morgan Stanley economists said in a note on Tuesday.

India’s Finance Minister Nirmala Sitharaman tabled the Economic Survey 2019-20 in Parliament on Friday. The survey suggests that India can look to emulate a typical Chinese business model which led to the creation of 70 million jobs in just five years. Those jobs were generated in the export-led industry. In addition to giving jobs to millions of people armed with just primary education, they also helped China to become a trade superpower. Apart from raising India’s share in world trade, it could give India 8 crore well-paying jobs by 2030.

The coronavirus outbreak in China could start to disrupt smartphone manufacturers in India if it continues to spread in February. India is the world’s biggest smartphone maker after China but is still largely dependent on China for supplies. Major mobile manufacturers in India include Taiwan’s Foxconn and Wistron, which make iPhones in India for Apple, and Foxconn, which produces phones for China’s Xiaomi as well. Other smartphone makers in India include South Korea’s Samsung and China’s OnePlus. So far, smartphone makers in India have weathered the impact of the virus partly because they had ramped up inventories of Chinese-made parts anyway to cover the Lunar New Year holiday period when China’s factories close down.

Pakistan has said a plan is being agreed upon which will allow eligible citizens to apply for dual nationality with Turkey.

The major Asian stock markets had a mixed day today:

  • Shanghai closed
  • Kospi decreased from 28.99 points or -1.35% to 2,119.01
  • ASX 200 increased 8.80 points or 0.13% to 7,017.20
  • NIKKEI 225 increased 227.43 points or 0.99% to 23,205.18
  • Hang Seng decreased 136.50 points or -0.52% to 26,312.63
  • SENSEX decreased 190.33 points or -0.47% to 40,723.49

The major Asian currency markets had a mixed day today:

  • AUDUSD decreased 0.00269 or -0.40% to 0.66891
  • NZDUSD decreased 0.0024 or -0.37% to 0.6464
  • USDJPY decreased 0.5300 or -0.49% to 108.3770
  • USDCNY increased 0.01575 or 0.23% to 7.00125

Precious Metals:

  • Gold increased 11.63 USD/t oz. or 0.74% to 1,585.79
  • Silver increased 0.1893 USD/t. oz or 1.06% to 18.0405

Some economic news from last night:

China:

Chinese Composite PMI (Jan) decreased from 53.4 to 53.0

Manufacturing PMI (Jan) decreased from 50.2 to 50.0

Non-Manufacturing PMI (Jan) increased from 53.5 to 54.1

South Korea:

Industrial Production (MoM) (Dec) increased from -0.5% to 3.5%

Industrial Production (YoY) (Dec) increased from -0.2% to 4.2%

Retail Sales (MoM) decreased from 3.0% to 0.3%

Service Sector Output (MoM) (Dec) decreased from 1.4% to -0.1%

Japan:

Jobs/applications ratio (Dec) remain the same at 1.57

Tokyo Core CPI (YoY) (Jan) decreased from 0.8% to 0.7%

Tokyo CPI (YoY) (Jan) decreased from 0.9% to 0.6%

CPI Tokyo Ex Food and Energy (MoM) (Jan) decreased from 0.1% to -0.5%

Unemployment Rate (Dec) remain the same at 2.2%

Industrial Production (MoM) (Dec) increased from -1.0% to 1.3%

Industrial Production forecast 1m ahead (MoM) (Jan) increased from 2.8% to 3.5%

Industrial Production forecast 2m ahead (MoM) (Feb) increased from 2.5% to 4.1%

Retail Sales (YoY) (Dec) decreased from -2.1% to -2.6%

Australia:

Housing Credit (Dec) remain the same at 0.2%

PPI (QoQ) (Q4) decreased from 0.4% to 0.3%

PPI (YoY) (Q4) decreased from 1.6% to 1.4%

Private Sector Credit (MoM) (Dec) remain the same at 0.3%

Singapore:

Bank Lending (Dec) decreased from 692.7B to 692.4B

Indonesia:

M2 Money Supply (YoY) (Dec) decreased from 7.10% to 6.50%

Some economic news from today:

Japan:

Construction Orders (YoY) increased from -1.2% to 21.4%

Housing Starts (YoY) (Dec) increased from -12.7% to -7.9%

Singapore:

Business Expectations (Q4) decreased from -5.00 to -12.00

Hong Kong:

M3 Money Supply (Dec) decreased from 3.1% to 2.3%

India:

Federal Fiscal Deficit (Dec) increased from 8,078.34B to 9,317.25B

Bank Loan Growth decreased from 7.6% to 7.2%

Deposit Growth decreased from 9.8% to 9.5%

FX Reserves, USD increased from 462.16B to 466.69B

Infrastructure Output (YoY) (Dec) increased from -1.5% to 1.3%

GDP Annual decreased from 7.0% to 6.1%

EUROPE/EMEA:

Many people across the UK celebrated what is now known as “Brexit day.” There were also expectations of small protests for those who were against the split. Nothing will happen as of 11 PM, however, the UK and the EU will officially enter the transition period. During this period, the UK and the EU will agree on the finer points of the separation.

Many state leaders commented on Brexit, with French President Macron calling it a wake up call, but reiterating the leave campaign was based upon lies. Irish PM called Brexit “bittersweet” with the Irish border situation and the UK leaving the union. ECC head Ursula von der Leyen vowed to fight for EU interests.

The German government agreed to place a cap on residental rental prices in Berlin for the next 5 years until 2025 due to the doubling of rental cost in Berlin over the last 10 years. The cap will allow a maximum increase of 1.3% which is in line with inflation.

The US has announced plans to place their patriot missile system in Iraq as a way to counter any threat Iran poses. Meanwhile, the US House of Representatives passed two measures that will make it more difficult for the US to go to war with Iran.

The major Europe stock markets had a negative day today:

  • CAC 40 decreased 65.43 points or -1.11% to 5,806.34
  • FTSE 100 decreased 95.95 points, or -1.30% to 7,286.01
  • DAX 30 decreased 175.15 points or -1.33% to 12,981.97

The major Europe currency markets had a mixed day today:

  • EURUSD increased 0.0051 or 0.46% to 1.1081
  • GBPUSD increased 0.00989 or 0.76% to 1.31849
  • USDCHF decreased 0.0050 or 0.51% to 0.9644

Some economic news from Europe today:

France:

French GDP (QoQ) (Q4) remain the same at -0.1%

French Consumer Spending (MoM) (Dec) decreased from 0.7% to -0.3%

French CPI (YoY) remain the same at 1.5%

French CPI (MoM) decreased from 0.4% to -0.4%

French HICP (MoM) decreased from 0.5% to -0.5%

French HICP (YoY) remain the same at 1.6%

French PPI (MoM) (Dec) decreased from 1.1% to 0.0%

Spain:

Spanish Current account (Nov) increased from 2.83B to 3.35B

Spanish CPI (MoM) remain the same at -0.1%

Spanish CPI (YoY) increased from 0.8% to 1.1%

Spanish GDP (QoQ) (Q4) increased from 0.4% to 0.5%

Spanish GDP (YoY) (Q4) decreased from 1.9%  to 1.8%

Spanish HICP (YoY) (Jan) increased from 0.8% to 1.1%

Italy:

Italian GDP (QoQ) (Q4) decreased from 0.1% to -0.3%

Italian GDP (YoY) (Q4) decreased from 0.5% to 0.0%

Germany:

German Retail Sales (MoM) (Dec) decreased from 1.6% to -3.3%

German Retail Sales (YoY) (Dec) decreased from 2.7% to 0.8%

Swiss:

Retail Sales (YoY) (Dec) decreased from 0.5% to 0.1%

Norway:

Credit Indicator (YoY) (Dec) decreased from 5.6% to 5.1%

Central Bank Currency Purchase (Feb) remain the same at -500.0M

Unemployment Change (Jan) decreased from 76.68K to 75.67K

Unemployment Rate n.s.a. (Jan) increased from 2.20% to 2.40%

UK:

BoE Consumer Credit (Dec) increased from 0.653B to 1.218B

M4 Money Supply (MoM) (Dec) decreased from 0.8% to 0.1%

Mortgage Approvals (Dec) increased from 65.51K to 67.24k

Mortgage Lending (Dec) increased from 4.25B to 4.55B

Net Lending to Individuals increased from 4.5B to 5.8B

Euro Zone:

Core CPI (YoY) decreased from 1.3% to 1.1%

CPI (YoY) (Jan) increased from 1.3% to 1.4%

CPI, n.s.a (Jan) decreased from 105.43 to 104.42

GDP (QoQ) decreased from 0.2% to 0.1%

GDP (YoY) decreased from 1.2% to 1.0%

HICP ex Energy & Food (YoY) (Jan) decreased from 1.4% to 1.3%

US/AMERICAS:

The Dow sank over 600 points this Friday, its worst performance since August 2019, as coronavirus fears have spread to equities. “Do not travel to China,” the US State Department boldly declared in a statement. The US State Department issued the highest travel advisory warning for China, which is equivalent to their evaluation of traveling to Iraq and Afghanistan. American Airlines, Delta, and United all canceled flights to mainland China until the spring. Health and Human Services Secretary Alex Azar announced that Chinese nationals will be denied from entering the US until further notice. Azar also said that US nationals who recently visited the Wuhan area will face a mandatory 14 day quarantine. So far, 195 Americans have been placed under quarantine.

Ukrainian President Volodymyr Zelensky and US Secretary of State Mike Pompeo held a joint press conference this Friday in which they stated that Ukraine-US relations remain strong. “It seems to me it’s the other way around,” Zelensky stated when asked if President Trump’s impeachment has affected Ukraine’s ties to the US. “We have excellent relations between our countries.” Pompeo stated that the US will continue to defend the nation against the “Russia-instigated conflict in east Ukraine” through financial aid.

Amazon’s stock surpassed the $2,008.80 mark midday this Friday, which spiked the company’s valuation to over $1 trillion. Apple, Microsoft, and Saudi Aramco are the only other companies to reach the $1 trillion mark. The rise comes one day after Amazon released a favorable fourth-quarter earnings report of $6.47 EPS compared to analysts’ estimate of $4.03.

Mexico’s economy contracted by 0.1% in 2019, which marks the first time in a decade that Latin America’s second-largest economy posted a decline. President Andres Manuel Lopez Obrador, who took office in December 2018, said he is not concerned about the tightening. “It’s very important to have better distribution of income and that the benefits reach all,” the president said after citing that growth could have meant “more money in a few hands.” The ratified NAFTA (USMCA) deal is expected to boost Mexico’s economy in 2020.

US Market Closings:

  • Dow declined 603.41 points or -2.09% to 28,256.03
  • Nasdaq declined 148 points or -1.59% to 9,150.94
  • S&P 500 declined 58.14 points or -1.77% to 3,225.52
  • Russell 2000 declined 34.16 points or -2.07% to 1,614.06

Canada Market Closings:

  • TSX Composite declined 172.07 points or -0.98% to 17,318.49
  • TSX 60 declined 11.47 points or -1.10% to 1,032.97

Brazil Market Closing:

  • Bovespa declined 1,767.47 points or -1.53% to 113,760.57

ENERGY:

India reported their lowest production of oil in the last eight years. What made matters worse was the ban of Iranian oil, which was one of their main sources of oil.

The oil markets had a mixed day today:

  • Crude Oil decreased 0.83 USD/BBL or -1.59% to 51.3574
  • Brent decreased 0.22 USD/BBL or -0.38% to 57.9533
  • Natural gas increased 0.02 USD/MMBtu or 1.01% to 1.8525
  • Gasoline decreased 0.03USD/GAL or -2.03% to 1.5060
  • Heating oil decreased 0.04 USD/GAL or -2.54% to 1.6281
  • Top commodity gainers: Ethanol (1.26%), Rubber (1.19%),Silver (1.06%), and Natural Gas (1.01%)
  • Top commodity losers: Lean Hogs (-7.40%), Heating Oil (-2.54%), Gasoline (-2.03%), and Platinum(-2.03%)

The above data was collected around  14.20 EST on Friday.

BONDS:

Japan -0.06%(-0bp), US 2’s 1.36% (-3bps), US 10’s 1.53%(-3bps); US 30’s 2.00%(-2bps), Bunds -0.44% (+0bp), France -0.18% (-3bp), Italy 0.92% (-2bp), Turkey 10.00 % (+14bp), Greece 1.18% (-48bp), Portugal 0.22% (-3bp) Spain 0.23% (-4bp) and UK Gilts 0.52% (-2bp).