Equities bounce, Cass shipping index sinks, inflation and FOMC minutes on tap

Morning Note

And… buy the dip. No one cares about corporate profits warnings anymore. Expected stimulus and expectations for looser monetary policy is the only thing driving the market. But shipping volumes are tanking as global trade contracts. There is only so much bad news =good news this market can take. Xi says China will meet its growth target for the year. But who cares when you make up the numbers anyway? 

Asian equities bounced overnight after Apple’s revenue cloud threatened to dampen the mood. So far it’s just been a light shower. Hong Kong rose 0.5%, while Tokyo erased Tuesday’s 1% decline as trade data showed a narrower-than expected decline in exports. Shares in China were a bit more mixed but Taiwan rallied.

European markets are riding the wave, with the FTSE 100 opening up about 40 pts higher at 7423. The DAX is a third of a percent higher at 13,733.

Yesterday, US equities felt the burn from Apple’s warning. The Dow ended 165 points lower. Apple was just down just 1.83% at stumps. The sense is very much that the world’s most valuable company will ride this out – sticky consumers will only delay purchase of Apple goods, not switch to Samsung or Android.

Easy money is what’s important. To give you a flavour, corporate debt protection is at its cheapest for almost 13 years. The CDX North American Investment Grade index, which tracks the cost of protecting against US corporate defaults at 125 companies, sank to its lowest since July 2007. Roll back the maturity and lo your default risk drops. Easy, but I don’t think refinancing existing debt is what loose monetary policy is meant to achieve.

But investors probably should be more concerned about the fallout from the coronavirus. Global trade was already declining before the coronavirus hit – the latest Cass Freight Shipping Index for January was down 9.4% year on year, the largest drop since 2009. This all before the major hit to shipping and trade from the coronavirus in February. Cass notes some Chinese factories are back to work, but are not at 100% capacity, and some have pushed back reopening to Mar 1st.

Overnight Japan exports fell 2.9% in January, short of the nearly 7% drop expected but still indicating the third largest economy is in the mire. It was also a slower rate of decline than the 6.3% in December. But machine orders fell more than expected, down 12.5% vs the 9% forecast.

Divergence – that’s the word for the performance of the US and Eurozone economies. Germany’s ZEW sentiment data was another blow for the euro, which is in a slow death march lower against the US dollar. For EURUSD it’s death by a thousand cuts. The Empire State manufacturing index finally did for the 1.08 level yesterday as we found a new low at 1.07850. This morning EURUSD briefly recovered 1.08 this morning but bears still very much in control. Not a lot of support to close the Macron Gap back to 1.05.

FOMC meeting minutes on tap today are likely to stick to the script and reiterate to the market that the Fed is ‘on side’. Inflation a little hot is better than inflation a little below target, San Francisco Fed president Mary Daly pointed out earlier this month. In particular, we will be looking at anything on balance sheet guidance and on inflation targeting. On a more general note we will look at how much the Fed is citing ‘downside risks’ the outlook – have these worsened since the end of last year? Also of course anything on coronavirus. US PPI is due later today – important leading indicator forecast at +0.1%. We’ve also got Canadian CPI numbers on tap.

One could make a case for U.K.-EU divergence too. EURGBP has declined 11% since August, testing 0.8280, a whisker from the Dec low at 0.82750. There is not a heap of support down to 0.80.

Sterling is eyed ahead of the U.K. CPI release at 09:30, seen at 1.6% vs 1.3% previously. The pound has been holding a pretty tight range and it will take a large surprise to jolt it out of its comfort zone.

GBPUSD remains well anchored to 1.30 – the inflation data may well come in soft again. But while that push cable lower for a time the pull of 1.30 remains strong, and the Bank of England seems minded to look through this bout of lower inflation. 

Gold pushed up to $1600 again and has held gains. The spike at $1611 is the upside target for now. Very tentative signs of a long term head and shoulders topping pattern forming, with the current thrust forming the head. One more dip, one more rally then back. For now lower yields – be it from coronavirus driving safe haven flight, or monetary policy expectations is driving price action.

USDJPY has cleared 110 but ran out of steam at 110.10 and failed to test the Jan highs a little above 110.20.

Oil is firmer, with the apparent base around $50 providing the fulcrum for this move towards $53, running short at $52.90. The drive out of the double bottom neckline is sluggish though and betrays a lack of conviction on the demand side recovering as quickly as bulls would like.


Metro Bank is getting a new boss. Dan Frumkin, the interim CEO, has landed the poison chalice, I mean top job. RBS, Northern Rock and stint in Bermuda and Latvia seem to fit with Metro quite well. It’s been a torrid old time for Metro with shares down 85% in a year, reporting errors, regulatory investigations and the troubled launch of a senior bond issue at an eye-watering 9.5% coupon. Shares fell 1.5% on the news – perhaps a fear that there are no fresh ideas?

IAG shares are up close to 1% after Qatar Airways increased its stake to 25.1% from 21.4%.

Markets in risk-off mode, Fed sounds caution, BoE set to cut?

Morning Note

Fears of a pandemic may be overegging the pudding, but there is again a clear risk off mood in the market. Cases and deaths rise, airlines are gutting their flight schedules and factories are extending holidays well into February. The mood in the market is one of severe concern – Hong Kong shares tumbled overnight, down 3% again while the Nikkei in Japan was off nearly 2%. The yuan is close to 7 again.

Global equities traded without direction yesterday with little steer coming from the Fed and ongoing watchfulness over the coronavirus in China. Uncertainty over the virus spread and its economic impact continues to dog global markets and today will pressure US and Europe lower still. Yesterday the FTSE and DAX posted tiny gains. The Dow eked out the slimmest of gains, while the S&P 500 was marginally lower. There was no conviction in the bounce post Monday.

Futures indicate European shares are lower as the coronavirus spread shows no signs of slowing. Numbers outside China remain small, but WHO Director-General Tedros Adhanom Ghebreyesus said they’re worried about human-to-human transmission. The WHO will meet today to decide whether this is a global emergency.

Investors are clearly looking to the spread of the coronavirus and hoping it doesn’t start to show up more in Europe and the US. Fed chair Jay Powell’s concern over the outbreak only underlined caution as the order of the day. 

The Fed left its main funds rate on hold but did tweak the IOER, raising by 5bps to 1.6%, as expected. The statement on the economy had just one change, with the Fed saying household spending was ‘moderate’. This compared to the December statement when they called it ‘strong’. This was a dovish move, as was Jay Powell’s caution over the coronavirus. He also reiterated the Fed’s worry about inflation being too low, and noted that there is yet to be a sustained pick up in manufacturing.

The Fed seems happy to sit back and assess the data for the time being. The focus is more on policy tools than on policy itself. The Fed remains on hold but we see a clear easing bias, as evidenced by the more cautious statement on household spending.

Earnings look positive in the US, with McDonald’s, Tesla and Apple all posting stronger-than-expected earnings. Even Boeing shares rose, as it tried (again) to draw a line under its troubles despite posting an annual loss for the first time since 1997.

The Bank of England is the main risk event today. I’m still in the cut camp. Markets currently see a roughly 50% chance of a cut.

Harder data has turned notably softer and the BoE doesn’t want to risk allowing weakness to become entrenched. Whilst PMI and CBI survey data did evince something of a Boris Bounce there should be sufficient doubts about whether this will be maintained to warrant a pre-emotive cut.

A cut takes GBPUSD back to 1.28, but a hold is likely to spur bulls to north of the 1.31450 resistance and take out 1.32. There will also be some significant importance attached to whether the BoE decision is seen as:

1) a dovish hold (not now but likely in May); 

2) a hawkish hold (Boris bounce needs to be monitored for longer, seeing a turn in the data, low inflation isn’t a worry);

3) a hawkish cut (one and done, insurance cut); or 

4) a dovish cut (one now, maybe another in May or in the second half if uncertainties persist).

Tesla crushed it with a second straight quarterly profit that defied even bullish expectations. The short case is staring to crumble with each quarter. 

Tesla shares shot higher after hours, leaping 14% to $660. With a spike like this I think what you saw was a lot of shorts finally throwing in the towel.

EPS and revenues beat expectations – critically now Musk sees ongoing free cash flow and net income, which greatly diminishes reliance on investors for future investment.

Deliveries this year will easily exceed 500k – that’s a lofty 35% increase from last year.

Model Y production begins in earnest – deliveries are due to start in March, several months earlier than planned.

Oil was dealt a blow as US inventories rose more than expected. This was not what the bulls had been hoping for. Inventory data showed a build of 3.5 million barrels in the week to Jan 24th, seven times more than expected. Gasoline stocks rose for a 12th consecutive week, hitting a record high at 261.1 million barrels. WTI has retreated to below $53, testing the $52.0 area before bouncing.

In FX, GBPUSD is steady with 1.30 holding just, and should be flat at first before starting to move on BoE expectations running into the 12pm decision. It will be a big move – at least one big figure. EURUSD has found key support at 1.10 holding the bulls are yet to be drawn in properly. USDJPY is a tad lower under 109 seemingly on risk-off bid.

Hong Kong shares dip, FOMC on tap

Morning Note

The pendulum of risk swings back and forth…Hong Kong shares sunk overnight as expected as the market played catch upon reopening after the new year holiday. The Hang Seng dipped 3% before paring losses a touch to trade 2.6% weaker.

This comes after a rebound in the US and Europe as investors decided to buy the dip following Monday’s sell off. The Dow added 187 points, after shedding 450 on Monday. The S&P 500 rose 1%. The FTSE 100 and DAX both climbed 0.9%.

Ahead of the open, futures indicate a flat open for European markets as they seek fresh direction from the Fed meeting later, developments in China with the coronavirus, and a raft of corporate earnings on Wall Street. The Dow could be particularly sensitive with Boeing, McDonald’s and Microsoft reporting. We also have Tesla and Facebook coming up – it’s a big day for earnings.

In terms of the Fed meeting today, the key thing we’re looking for today relate to balance sheet expansion – anything that suggests the free money taps could be turned off may expose riskier assets. Markets are accustomed to the Fed riding to the rescue and using monetary policy to create an easy path higher for stocks. Today’s Fed meeting will be important against this backdrop of heightened risks and we also need to look at whether the expected increase in the IOER by 0.05% to 1.6% will worry markets. As detailed in our Fed preview: Just tweaks, we expect no change to the fed funds rate and for the FOMC statement to describe policy appropriate. Market pricing indicates no chance of a cut. The emergence of the coronavirus in China will warrant a degree of caution in the outlook from the Fed, whilst there is little upward pressure on prices to suggest a shift in the FOMC’s stance. The signing of the US-China trade deal only confirms priors and doesn’t materially alter the outlook from last month.  Recent economic data only confirms momentum has slowed but remains solid. Yesterday’s December durable goods orders ex-defence were sharply lower. Easing bias still very much place. 

Coronavirus is already bigger than SARS was in China. There are now confirmed cases of the coronavirus in mainland China, including 132 deaths, according to China’s National Health Commission (NHC). There’s mutterings the true number is much higher. The White House is said to be considering an outright travel ban between the US and China – this would have serious implications for trade and the economy.

Cases are rising but the questions over the coronavirus outbreak as it pertains to the Chinese – and therefore global – economy remain unanswered. Could it affect China’s ability to meet trade deal commitments for instance? There is a worry if things get really bad, not only do we see a material decline in Chines GDP growth, but this also creates headwinds for complying with the deal. Further deterioration in the yuan is among the most obvious concerns as we have seen USDCNH rally since the outbreak and threaten to go above the key 7 level. In terms of growth being affected in China, there is a clear risk to supply chains and contagion in the rest of the region as well as knock-on effects further afield. The most obvious risks are to consumption but a sustained lockdown in the major cities would also tend to lead to a loss of output that could be hard to claw back later in the year.

The swing in the risk pendulum favoured stocks and oil but sent gold bulls packing. Crude oil recovered the $54 handle to successfully close the gap from Sunday’s open. Sentiment remains dicey. OPEC and co are getting on the wires talking up prices, indicating they’re starting to really worry. Gold has eased off highs north of $1580 to trade around $1563.

Interestingly both gold and oil have closed their respective gaps after moving sharply at the start of the week on coronavirus fears. Markets have been swift to retrace, so we now must see whether these mark reversals or whether the pre-existing trends reassert themselves.

Sterling is steady ahead of tomorrow’s knife-edge Bank of England decision. Markets see a roughly 50% of the MPC voting to cut rates. GBPUSD is well anchored at 1.30 but whatever the outcome will slip that berth. Recent comments from several policy makers at the Bank, some softer inflation data and GDP numbers, and persistent risks to the global outlook suggest the MPC may choose to act now to cut. 

Meanwhile Britain has decided to allow Huawei to supply parts of its 5G network. This could be a mistake, and make doing a trade deal with the US harder. But it also be a bargaining chip. It also indicates the UK is prepared to forge its own course, which is no bad thing.

EURUSD has found support at 1.10 is bonding for now. USDJPY continues to languish at 109 but there’s not much conviction on either side to see 108 or 110 first.

Equities rocking as coronavirus cases jump

Morning Note

We see some relief early doors for Europe but global equity markets are still rocking, with boards lit up red as investors manage risk in the face of China’s coronavirus outbreak. There are no signs of this letting up – but at least market expectations have shifted markedly since the middle of last week to better reflect the risk of a rapid rise in confirmed cases. The problem is investors have very limited visibility of the current situation in China, have virtually zero knowledge of epidemiology and virology, and have no clue how bad it will get or lasting the impact will be. Risk models are not geared for this situation.

Nevertheless, futures today indicate a very mild rebound in Europe and the US, with the DAX seen up at 13280 and the FTSE 100 at 7444 on the open. US futures point to gains too today.  But we are not convinced this will hold – as explained in yesterday’s note, buying the dips is alive and well – I would anticipate dips to be buying opportunities for many in the market. But one feels equities face headwinds still as the peak of this health crisis has some way off still.

Those Asian markets that are open have posted steep declines on Tuesday – Singapore, Sydney and Seoul all slipping 2-3% after we saw a day of heavy selling in Europe and the US on Monday. Hong Kong markets will trade as normal tomorrow – this will be the best gauge of how much risk sentiment has been affected.

Cases of the virus are rising fast – up to more 4,500 confirmed in China now from 2,800 a day ago. The death toll has hit triple figures.

Authorities are tightening restrictions on foreign travel and on things like when workers will be allowed back to their posts after the new year holiday. For example, Shanghai is reportedly banning companies from restarting operations until Feb 9th. Foreign carmakers are pulling staff out.

We know there will be an impact on consumption, but if factories are kept shut we will also see a downturn in output in Q1. The risk for the Chinese- and by implication the global economy – is that the lockdown across much of China persists for a longer time than currently anticipated, crippling output as well as consumption.

On Monday, the S&P 500 fell 50 points, or 1.57%, while the Dow fell by the same margin, shedding over 450 points. These were the biggest one-day declines since Oct 2nd. It was a brutal session in Europe too, with the DAX down 2.75% and the FTSE 100 losing 2.3%. Airlines, miners and luxury retailers suffered most.

Risk-off flows further supported government bond prices, with the yield on US 10yr debt moving back to 1.6%. Bunds are near -0.4% again. Could have further to run, particularly if markets think that slacker global growth as a result of this virus spurs central banks to be more accommodative. Likewise gold is holding gains with lower yields supportive of the bugs – steady around $1580.

Oil – ahead of their March meeting, reports suggest OPEC and her allies are examining all options – including extending and deepening production curbs – in an effort to control the slide in oil prices. For now traders are betting on weaker China growth in GDP and slacker tourism numbers in Asia to drive down demand. Libyan output remains sharply curtailed, by about 1m bpd, but this so far is providing little respite. WTI has firmed off its lows to $53.20 – bulls looking to quickly close the gap to $54 or we could get further weakness and retest of $50.

In FX, the yen has held gains but finding it harder to make much more headway. USDJPY was hovering around 109, having sunk as low as 108.7920. Key 200-day moving average support at 108.460 is yet to be tested, with the 100-day line at 108.60 also unscathed for now. The 50-day line around 109.20 is now resistance.

EURUSD is looking brittle having shed its Dec gains. A retest of 1.10 is on the cards particularly as coronavirus fears stoke bid for the relative safety of USD. Next up looks to be the key horizontal support at 1.0990, a level well-trodden in recent months. GBPUSD is a little weaker at 1.3030, having shed the 50-day line at 1.30640 which is now forming a resistance point. Sterling is likely to be well anchored around this 1.30 level until the Bank of England decision. Ahead of that is the Fed decision tomorrow night – no change expected but there could be some interesting nuggets from Powell in the presser.

China virus spread rattles equity markets, oil

Morning Note

Global stock markets started the week under a lot of pressure, as fears mount over the spread over China’s coronavirus outbreak. 

China has confirmed around 3,000 cases so far, with about 80 deaths. The authorities have extended the new year holiday by three days through to Sunday in a bid to control the spread.  

This has the potential to really rattle markets. And with stock markets having been at or very near all-time highs before all this broke, this is a perfect selling opportunity. The problem is for most investors this is just not a risk event they are prepared for – a true black swan in the making. If politics is hard to grasp for most buysiders then virology is impossible – that is enough reason to see de-risking to happen; although I would still anticipate dips to be bought. However the conviction may be lacking amid what will be a persistent worsening of the situation in terms of the number of the cases and the geography displayed by the headlines. As warned last week, this is going to get a whole lot worse before it turns. As with SARS though, I would expect a significant rebound once the – or indeed before – the worst is over. It’s worth noting that whilst the Hang Seng suffered heavy selling in the Jan-Apr period of 2003, the index finished the year up by 34% (albeit that was after three horrible years). We just don’t know enough about this.

Japan’s Nikkei 225 dropped 2% but most of Asia is shut for the holiday so trying to get a really accurate view of how sentiment is shifting is tricky – I’d think so would see some significant (3-4%) moves in Shanghai and Hong Kong today if they were not closed.   

European equities have been relatively sanguine in the sense that we’ve not seen a concerted move lower – Friday saw the major bourses add 1% each – the DAX hit a record high in the middle of it all last week. But I think as we start the week we do see some more coordinated risk-off flows as the indications that this virus has the potential to be a lot worse than SARS was in terms of the global economy.  Looking at the futures, the FTSE 100 handed back all of Friday’s rally and then some on Monday morning.

US markets had a tougher time – the S&P 500 suffered its worst week since August. But that’s only really because we’ve had such a languorous grind higher over the last six months. A second confirmed case in the US has spooked investors. Futures indicate further selling today with SPX last at 3260. Earnings this week have the potential to move the market – Apple, Tesla, Microsoft, Facebook and Amazon all due to report this week.

The big risk right now for Europe and US equity markets would be human-to-human cases within continental Europe/North America. Without that happening the focus will be more on the risk to global growth rates given the virus is hitting the drivers of global growth. 

Oil extended losses sustained last week as traders bet on slower China GDP growth and a hit to the global tourism industry – two of the key drivers of crude demand. Crude oil WTI sank as low as $52.50 in early trade Monday before paring losses to reclaim $53. We’ve seen further unwinding in speculative net long positioning, with the latest COT report indicating 520k net longs, vs 530k the week before. There’s a good chance we see $50 again, which is a level that would likely spark a response from OPEC when they meet in March.

Havens are well bid with gold rallying north of $1480 and the yen rallying past 109. US 10-year yields have sunk to 1.646%.  

In FX, USDJPY has recovered to 109 having sunk as low as 108.80, taking a look at the 100-day moving average. Safety flows ought to keep JPY bid. 108.50, the 200-day SMA, is the key support. Bulls looking to recover the gap and last Friday’s lows around 109.170. 

EURUSD is still on the defensive at 1.1030. Next up looks to be the key horizontal support at 1.0990, a level well-trodden in recent months. Data is light today but we do have the German Ifo survey at 9am GMT. 

GBPUSD is holding around 1.3070 having come off from its highs last week. All attention is on the Bank of England meeting on Thursday – it’s a coin flip whether they cut or not, according to market pricing. However, my inclination is that they will take this opportunity to ease.

Stocks soften on China virus fears + trade doubts, Oil sinks, ECB on tap

Morning Note

Asia has been sharply weaker overnight as fears over the coronavirus weigh on investors. Wuhan is in lock down – about time too, but coming as it does at the start of the New Year holiday, it’s a big problem for the authorities. Shanghai’s A50 slipped 3%, with the Hang Seng down 2%. Markets seemed to largely shrug this off yesterday but as I said in Monday’s note, it’ll get worse before it is sorted.

European shares are weaker at the open. Luxury and airlines are most exposed to the virus, as consumer sentiment and tourism suffers in China and around the region. The DAX has skidded a  further 0.4% lower to 13,450. The FTSE 100 was softer by around the same margin.

It was a strange old day yesterday as we saw record highs for the S&P 500 and Nasdaq but the bulls couldn’t maintain any momentum. The Dow eased a shade lower with Boeing down again. The DAX also notched a record intra-day peak but failed to hold on, closing 0.3% lower at 13,515. The FTSE 100 was 0.5% down at 7571, languishing on pound strength. 

Whilst it may seem odd to talk about what’s dragging on the market when we’re at record highs, there’s no doubt bulls are just a little timid right now to really blow this higher. And given the recent ramp, the market is ripe for a pullback.

First the coronavirus has everyone a little on edge, and is a clear and obvious drag for airlines etc. Chinese bourses and Hong Kong are most exposed to the risk, but there is definite risk of contagion.

Two, the rhetoric on trade we’re hearing from Mnuchin and Trump at Davos is as belligerent as ever, while Von Der Leyen is hardly striking an emollient tone over British hopes for a quick and easy deal with Europe. Divergence from EU rules means, er, trade not an equal terms. It’s unavoidable.

Brexit to one side, British and French digital tax plans are the next front in the Trump trade wars and could threaten to undo some of the recent gains in US and European equities. Trump will hit Britain with punitive auto tariffs if the govt goes ahead with a digital services tax disproportionately targeted at US tech giants. The same goes vis-a-vis a French tax. 

Balancing the three competing aims of Britain, the US and the EU will require Bismarck-like skill by Boris Johnson. 

Three, valuations need earnings growth to justify stocks at this level. On that front, doubts are surfacing over Q4 profit margins although S&P 500 companies are generally beating expectations and growing revenues. But it could be four straight quarters of profit margin compression – that should make investors a little more cautious. Growth in Europe remains anaemic.

Tesla keeps squeezing the shorts without mercy. Shares rose another 4% – earnings due next week. Analysts are rushing to update forecasts and price targets. There’s a lot riding on these numbers – Tesla misses it could be a bloodbath.

Oil has continued to slide after snapping key support yesterday. WTI broke at $58 and kept falling until it found some tentative support at $55.60. I remarked last Tuesday that oil had a $55 handle written all over it – the bearish momentum is very powerful but we are approaching a more stable support zone and the market is close to showing overbought conditions on the 14-day RSI, which last time this occurred was a trigger for a rally. Brazilian output has risen to an all-time high. This is important as it shows that the fears over non-OPEC+ production ramping higher in 2020 – US, Brazil, Norway etc – is being evidenced and this will make impotent any reactive measures by OPEC and its allies. Effectively all OPEC is doing is ceding market share. Prices of WTI broke down through important long term averages yesterday and this could herald a further retreat, though $55 is likely to offer an area of stabilisation. We have seen net oil long positioning rather stretched, exacerbating this decline as speculative net longs are forced to liquidate. Worries over the potential impact of the coronavirus on China/Asia growth are a factor but largely I see this as over-extended longs having stops triggered.

Brexit – the government’s withdrawal agreement bill has passed! Roll on trade negotiations…it’s not going to be easy and the pound will act as a barometer of success. Headline risk will reappear for the pound.

Sterling is a tad firmer this morning after retreating from yesterday’s highs in overnight trade. GBPUSD knocked on 1.3150 twice and twice come down to rest on 1.3120. A third push to 1.3150 may be on but ran out of momentum this morning early doors at 1.31450. The chart pattern has a bullish and flaggy look about it. Near term a lot rests on the Bank of England policy decision next week, though we may start to notice trade play an increasing role in sterling’s moves as we enter negotiations with both the EU and US.

USDJPY has been weaker overnight, slipping its 110 berth to drop below the 200-week moving average at 109.50 to test important horizontal support. The chart suggests a bullish flag as long as this level holds.

EURUSD is treading water around 1.11080 as traders await the ECB meeting.

DAX hits all-time high

Morning Note

The DAX opened at all-time high having missed a record close yesterday by a hair’s breadth. The index rallied to 13,630 as other European bourses enjoy a firmer open. German companies are among most exposed global trade worries, and therefore those enjoying the biggest bounce since US-China relations improved at the back end of last year, resulting in this month’s trade deal.

Markets are largely shrugging off coronavirus concerns today after feeling a bit under the weather on Tuesday.

US stocks edged away from all-time highs as traders returned from the long weekend to the coronavirus outbreak in China and the start of Donald Trump’s impeachment trial. The Dow was down 150pts on the day, or a drop of 0.5%, while the S&P 500 slipped 0.25%. The first coronavirus case in the US was recorded, raising fears of the virus spreading. Airline, casino and cruise company shares were worst hit. 

Boeing took a nosedive, weighing heavily on the Dow, as it emerged the firm won’t get regulatory approval to fly the grounded Max 737 at least until the middle of the year. Reports that pilots have totally lost trust in Boeing are a further worry. Shares were halted limit down, slipping 5.5% before closing down 3.3%.

Donald Trump’s impeachment trial has begun with several wins for the Republican Party as Senate majority leader Mitch McConnell held his troops in for action to repel repeated Democrat sallies. The Dems made an early breach in the GOP wall by forcing McConnell to allow more time for opening arguments, but thereafter the defences held as a series of votes were passed on party lines 53-47. Dems don’t need many GOP Senators to waver, but for now it seems the citadel is safe. Key will be Republican aims to prevent witnesses being called. For now the Democrats’ chances of winning look like a forlorn hope.

Asia has broadly rallied overnight. The Hang Seng recovered from its worst day in months to rise 1.2%. 

European indices climbed off the lows struck in the morning to pare losses on the day but were still broadly weaker. The DAX was the best of an ugly bunch, eking the slenderest of gains – and moving to a near record close. The FTSE 100 edged 0.5% lower as the pound rallied, weighing on the international facing stocks.

In FX, the pound is on a firmer footing as markets dial back expectations the Bank of England will cut rates. GBPUSD has held gains above 1.30 at 1.3050 where it’s wrestling with the 50-day moving average and the long-term 23.6% Fib resistance around 1.30540. If these are breached we may consider a move back to the key double Fib level at 1.31450, a previous support zone. If the Bank does not cut then this is where we would expect GBPUSD to move back to, although last Friday’s swing high at 1.31180 needs to be cleared first.

We need the flash PMI releases on Friday to really tell us what the Bank is likely to do. These are undoubtedly set to rebound, as they will reflect renewed business optimism in the wake of the Conservative election win. The sudden absence of the Corbyn risk to businesses will see a rebound in sentiment – the Boris Bounce in action. However, is that enough for the MPC? 

EURUSD failed to break through at 1.11 and was looking weak at 1.1080. The pair seems happy to tread water cautiously ahead of tomorrow’s ECB meeting. USDJPY rallied to take 1.10 again.

Gold and oil doing precious little. Gold has been bounced back to support at $1550 having attempted to make a run at $1570 and running out of steam around $1568. Oil has come back to $58, again aiming to recover the 50% Fib level of the rally from the Oct low to the recent high around $58.30.

Asian shares in disarray over SARS-like virus, yen rallies

Morning Note

Shares in China and Hong Kong fell amid fears over the spread of the coronavirus just as the new year holidays begin. The worry is this is another SARS, an outbreak that saw thousands infected and led to hundreds of deaths. It also led to billions of dollars of losses and hit Chinese GDP growth by up to one percentage point. If that happened again the IMF’s latest forecasts would not stand up, and we’d see a sharp contraction in many leading indicators of the global economy.

We don’t know how bad this will be, but with authorities confirming the disease can spread between humans, it’s wise to be on guard for this outbreak to get worse before it gets better. And there is a real fear that as millions of people travel long distances for the holidays the disease could spread far and wide. Markets are worried about this spreading to more cities. Australia has quarantined a man returning from the city of Wuhan, who is believed to carry the disease.

Hong Kong could be a real problem if it reaches there – the SARS outbreak led to sharp declines on the Hang Seng in the Jan-Apr 2003 period.

Shanghai fell almost 2%, while Hong Kong dipped close to 3% lower. A downgrade by Moody’s of Hong Kong on Monday hasn’t helped.

US markets will reopen after the holiday. Futures were in water-treading mode after Friday’s rally capped a strong week for the major indices. Netflix Q4 numbers are on tap later – with EPS seen at $0.5 on revenues of $5.45bn, and net subscriber additions of 7.6m, with 7m, from RoW and 0.6m from the US. The key question is to what extent competition is starting to bite – either in the Q4 numbers themselves or in the guidance (see Netflix preview: Content to be primus inter pares?)

Europe was flabby without the US liquidity with the DAX the only bright spot, eking out a gain of 0.17% to 13,548. Bulls continue to target all-time highs at 13,600 but the consistency with which this level has proved too strong to overcome is a concern. If it blows I’d expect momentum to grind out more record highs. The FTSE 100 retreated to 7,651.

European shares are catching a bit of a cold from Asia, but I’d anticipate very limited contagion as long as the coronavirus remains a purely Asian problem. DAX dipped to 13,470, with the FTSE moving under 7600 before paring losses. France and the US have agreed a truce over the planned digital tax, but risks remain.

The risk-off contagion spread to other markets with a notable divergence in FX, as the yen rose and the yuan fell. USDJPY has slipped its 110 berth to at 109.950, but remains supported above the 200-week moving average at 109.70. USDCNH jumped through 6.9. As we’ve noted before, there may be side effects on the US-China trade pact if the yuan takes a 7 handle.

Overnight the Bank of Japan offered no surprise as it left rates unchanged, and improved its growth outlook. Better growth prospects, the signing of the US-China trade deal and a weaker yen means the central bank need not rush into more stimulus. The BOJ kept its short-term interest rate target at -0.1% and a pledge to guide 10-year government bond yields around 0%.

Elsewhere, we’re looking to UK wage data today as another possible guide to what the Bank of England might do on Jan 30th. Earnings are seen up 3.4% in the three months through Nov, with unemployment is forecast at 3.8%.

Whilst there may be lots of arguments against a cut, the coordinated dovish commentary from half the MPC in the last fortnight is no accident. Data has turned notably softer and the BoE doesn’t want to risk allowing weakness to become entrenched. As noted in last week’s note on this, BoE: Stitch in time saves 9, there is a sense the Bank doesn’t want to get behind the curve of market expectations, and is seeking to get a jump on markets whilst still teeing up the cut. It would be following the Fed’s playbook in cutting early in order to prevent a downturn. This is the key thing to remember – the Bank does not want to let a weaker economy fester.  And whilst there is no trade deal with the EU, the MPC has been largely released from the shackles of Brexit uncertainty following the Conservative victory last month. Political risk has hobbled the MPC but this has diminished greatly and now is the window – before a possible clash with the EU in the spring that would make policy changes more political in nature – to get a cut in the bag to juice the economy. 

GBPUSD is holding 1.30 again having traded weaker yesterday. This level is the magnet until either the Bank decision next week or the gilt market moves early and gives a clear signal about what’s coming. EURUSD is little changed at a little below 1.11.

Gold was also a touch higher at $1566, catching some mild bid on the risk-off moves and as the yield on US 10s slipped below 1.8%.

Crude oil closed the gap within a few hours of trading yesterday, having spiked higher due to production outages in Libya and Iraq it failed the test at the 50-day moving average. At send time WTI was just holding on to $58, aiming to recover the 50% Fib level of the rally from the Oct low to the recent high around $58.30.

Stocks near record highs, oil spikes on Libya outage

Morning Note

In markets, stocks keep on punching new all-time highs with the US and China trade deal signalling a turning point for global growth.

Friday capped a strong week for stocks as the S&P 500, Dow, Nasdaq and the Euro Stoxx 600 notched fresh record highs. The US big three each had their best week since August. European shares are up 20% in a year. Asia remains about 7% below all-time highs, with worries about Chinese growth, the trade war and unrest in Hong Kong weighing.

Economic indicators from the world’s two largest economies have provided encouragement in recent days. US data is solid – new home starts rose to a 13-year high, while manufacturing activity was stronger than expected. China growth numbers that met expectations also soothed nerves.

US markets are shut for a public holiday today so we may see somewhat reduced liquidity.

European markets are flat at the start of the week but we don’t expect things to stay completely unmoved all week. The FTSE 100 may be testing 7700 today. Asia has been broadly higher though Hong Kong is weaker overnight with rally organiser arrested after protests turned violent.

This week the focus shifts back to corporate earnings. So far so good in terms of S&P 500 earnings with c80% of companies reporting so far beating earnings expectations. About 40 are out of the traps this week. Our highlighted stock is Netflix. See note Netflix: Content to be primus inter pares?.

In FX, the pound remains on the back foot after weak retail sales on Friday only added to speculation the Bank of England will cut rates sooner rather later. The way the MPC members have been talking and the way the data is going, this month’s meeting is the window. GBPUSD has again slipped its 1.30 berth to take a 1.29 handle, trading currently at 1.2980.

Noting some concern expressed by businesses after the chancellor said Britain would not be a rule taker after Brexit and for companies to expect divergence from European rules and laws.

EURUSD is weaker just below 1.11, threatening to test trend support around 1.1060. Bulls are trying to hold the 50-day moving average at 1.11. We may see some volatility around the ECB meeting later in the week.

USDJPY is holding 110 and moving higher – the breach of the 200-week moving average was completed and now bulls may start to look to a push towards 112.

Oil took off amid supply disruption in Libya and Iraq. Production of 1.2m bpd has been completely crippled after forces loyal to Khalifa Haftar closed a pipeline. About 800k bpd of that figure has been taken out, although it could be higher. This is coinciding with disruptions to production in Iraq. We can expect both countries to provide ongoing supply uncertainty but these are relatively mild and likely to be shorter duration outages. I don’t think we are seeing a major disruption – certainly any spare capacity can simply be absorbed by other OPEC members gladly pumping a little more to compensate. And the global oil market just isn’t as exposed to shocks as it once was.

WTI gapped up to $59.70 but have since retraced to around $59.20. The gap could close back to the $58.60 area fairly quickly if this gets resolved. Failure to hit $60 shows bulls don’t have much appetite. The 50% Fib level of the rally from the Oct 2018 low to the recent high, sits around $58.30. Last week crude stocks fell more than expected, the build-up of products was huge. Crude inventories dropped by 2.55m barrels for the week through to January 10th vs -474k expected. But gasoline inventories were up 6.7m barrels vs +3.4m expected. Distillate stockpiles rose 8.2m vs +1.2m expected. CFTC data shows speculators trimmed their net long exposure to 530k contracts from 567k a week before.

Gold is steady around $1560 with some signs emerging that Tuesday’s hammer candle was maybe more than a near-term reversal. Speculators have slightly trimmed net long positions. Palladium keeps on jumping on tight supply and rising demand.

Aside from earnings and Davos this week it’s a central bank trifecta on the running order, albeit we do not see any major surprises in the offing.

The Bank of Japan will hold – data has picked up a touch and the trade war truce between the US and China should offer elbow room to sit on their hands for a while longer.

The Bank of Canada is expected to hold but pressure is mounting to cut as growth slows and the rest of the world has already eased.

The European Central Bank is also set to leave rates unchanged – Christine Lagarde will be more focused on Davos, her natural habitat. Strategic reviews will buy her time – no pressure to cut right now especially as Draghi slashed to the bone just before she arrived.


Beggars can’t be choosers: Sirius Minerals has accepted Anglo American’s low ball offer, surprise, surprise. As we noted at the time, the £386m bid forced Sirius into a corner as it was seeking cash and they had little choice but to accept what they were given. As we noted: The fact this offer is public could make raising cash for other sources very tricky now, if not impossible, forcing SXX into something of a corner – even if the price is not the best they will have to accept it. The market knows they need cash ASAP but with this offer on the table, it’s now the only show in town – they have to recommend it or it’s curtains. Anglo is picking up a distressed asset on the cheap.

Fevertree has not entirely lost its sparkle, but tough Christmas sales in Britain are a bitter tonic when it needs to be focusing on the key US market. The meltdown across the UK retail market left sales -1%. But USA sales – where the real growth is to be found – were up 33%. Europe (+16%) and Rest of the World (+32%) were also strong. Group revenue is expected to be £260.5 million representing growth of c.10%.

But the fact is the UK remains where the earnings come from so the softness here is a short-term drag on profitability. Management now expect earnings to decline by around 5% when compared to 2018. Margins are coming under more pressure. Fevertree also plans to continue to invest in the brand. The company is entering a different part of the cycle, but USA growth should start to really come through later in the year. Moderation in UK growth is entirely as expected – the key is the US and RoW segments. Shares have already significantly rerated to reflect slower UK growth but probably don’t fully reflect the potential in the US at present.

Stocks nudge higher as investors look beyond trade deal, oil recovers

Morning Note

‘Markets rally on trade deal hopes/tumble on trade war fears’ have been regular refrains of headline writers and commentators for months. The good news, for those of us who detest change, is that these should be applicable in the coming months just as much as over the last year. If you thought phase one was good, wait ‘til you see what’s coming…Trump will be able to keep markets on his leash with tweets and tirades about trade and China for months.

Maybe with the trade deal signed we can refocus on the data and, more importantly, what to the reaction function of the Fed will be to any softness in the coming months.

Nevertheless, putting a natural cynicism to one side, US equity markets made fresh record highs after the US and China put pen to paper on their historic trade deal. The Dow closed above 29k for the first time and the S&P 500 rose 0.2% to 3289.

Yes, the deal may be a bit puny for some, and there are plenty of risks ahead, but in coming to this agreement they’ve apparently averted never ending war. And doubts about the details of the deal had surfaced in recent days, so the fact it’s done is a relief. The truce will require calm on both sides to prevail and for lasting peace – a far more substantive phase 2 deal – to be reached.

Defensive sectors like healthcare and utilities led the gains on Wall St, and US bond yields were down, so it wasn’t entirely a case of risk-on. Indeed, as noted in previous commentary, there are multiple  risks ahead, some of which have been crystallised by this agreement.

– what if the renminbi breaks 7 again – how does Washington respond? The provisions on the currency are far from watertight – e.g. commitments relating to fx positions don’t amount to much as they’re already published.
– when does phase 2 start and what will be its scope and ambition? A phase 2 agreement of any substance won’t be done quickly. Which means tariffs are here to stay. The Sphinx-like Mike Pence said talks on phase two had begun.
– does Trump take a hard line pre-election? With the ‘victory’ secured on paper, and tariffs still in place, Mr Trump has a free pass to threaten to walk away from the phase one deal.
– does the US turn its trade gaze to Europe?
– with tariffs staying put, what is outlook for growth or inflation? GDP probably won’t be much affected, but inflation may be different.(though inflation is the dog that didn’t bark).

Markets were also cheered by suggestions the Trump administration is working on tax cuts 2.0. Details are of course sketchy and anything of this nature would be difficult to do before the election, but markets will lap it up nonetheless.

Earnings are helping too – four-fifths of S&P 500 companies that have reported have beaten estimates. There’s a clear sense that after the lacklustre growth seen in 2019 (and Q4 will only be +1-2% at best) that there’ll be a significant pick up in 2020. After multiple expansion in 2019 drove the vast part of the stock market’s gains, it’s over to earnings to drive more gains.

Asia’s response to the trade deal has been sanguine, with the major indices flat. Global stocks just nudged a record high in the wake of the trade deal being signed. In Europe, yesterday the DAX was a touch softer while the FTSE rallied 0.3% to 7642.80.

Ahead of the open, futures indicate Europe is treading water following the trade deal signing – the key question is where do we go from here. There are many possible routes.

Data overnight showed Japanese machinery orders up 18% in November. German CPI came in as expected at +0.5% MoM, 1.5% YoY.

Inventory data yesterday sent oil for a brief tumble but WTI has since reclaimed the $58 handle and is trying to hold onto the 50% Fib level of the rally from the Oct 2018 low to the recent high, which sits around $58.30. Although crude stocks fell more than expected, the build-up of products was huge. Crude inventories dropped by 2.55m barrels for the week through to January 10th vs -474k expected. But gasoline inventories were up 6.7m barrels vs +3.4m expected. Distillate stockpiles rose 8.2m vs +1.2m expected. Rejection of the 100-day moving average at $57.30 and the doji candle formed yesterday looks bullish but the momentum remains to the downside.

In FX, it’s steady as she goes. EURUSD is stalking around 1.1140, although it did make a stab at 1.1160 as the dollar was offered amid the fall in Treasury yields. Clearance of 200-day and 200-hour moving averages seem to be snapping a two-week downtrend. Bulls need to clear the swing high at 1.11680 before a push to 1.12.

GBPUSD is starting to push north of the 1.30 level and has cleared the 50-day moving average at 1.3030 to trade close to 1.3050, although it’s still got a strong attraction to this round number, like a moth to a flame. Markets still undecided on whether a rate cut is coming this month so if the Bank does move to ease it opens up possible fresh downside towards the 1.28 region. USDJPY is just a little shy of 110 and has moved below the 200-week moving average again.

On tap today

ECB meeting minutes – looking for clues about future monetary policy from the Dec meeting. The first minutes from a Lagarde meeting could be interesting, but this was a dead meeting. Lagarde is no Draghi but she’s smart and buying herself time. She is due to speak in Frankfurt later also.

US retail sales – how strong is the US consumer? Probably still pretty strong by all accounts. Forecast +0.3%, or +0.5% for the core reading.


  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to EUR20,000
  • 1,000,000 insurance cover** 
  • Negative Balance Protection


  • CFD
  • Share Dealing
  • Strategy Builder

Markets.com, operated by Safecap Investments Limited (“Safecap”) Regulated by CySEC under licence no. 092/08 and FSCA under licence no. 43906.


  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection
  • $1,000,000 insurance cover** 


  • CFD
  • Strategy Builder

Markets.com, operated by Finalto (BVI) Ltd by the BVI Financial Services Commission (‘FSC’) under licence no. SIBA/L/14/1067.


  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to GBP85,000
    *depending on criteria and eligibility
  • £1,000,000 insurance cover** 
  • Negative Balance Protection


  • CFD
  • Spread Bets
  • Strategy Builder

Markets.com operated by Finalto Trading Ltd. Regulated by the Financial Conduct Authority (“FCA”) under licence number 607305.


  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection
  • $1,000,000 insurance cover**


  • CFD

Markets.com, operated by Finalto (Australia) Pty Ltd Holds Australian Financial Services Licence no. 424008 and is regulated in the provision of financial services by the Australian Securities and Investments Commission (“ASIC”).

Selecting one of these regulators will display the corresponding information across the entire website. If you would like to display information for a different regulator, please select it. For more information click here.

**Terms & conditions apply. Click here to read full policy.

An individual approach to investing.

Whether you’re investing for the long-term, medium-term or even short-term, Marketsi puts you in control. You can take a traditional approach or be creative with our innovative Investment Strategy Builder tool, our industry-leading platform and personalised, VIP service will help you make the most of the global markets without the need for intermediaries.

La gestión de acciones del grupo Markets se ofrece en exclusiva a través de Safecap Investments Limited, regulada por la Comisión de Bolsa y Valores de Chipre (CySEC) con número de licencia 092/08. Le estamos redirigiendo al sitio web de Safecap.


Are you lost?

We’ve noticed you’re on the site. As you are connecting from a location in the you should therefore consider re-entering , which is subject to the product intervention measures. Whilst you’re free to browse here on your own exclusive initiative, viewing the site for your country will display the corresponding regulatory information and relevant protections of the company you choose. Would you like to be redirected to ?