Markets Currently: Sharp moves as COVID-19 concern reaches fever pitch


The extent of the spread of the coronavirus in South Korea, Europe and various other nations, has driven a key fallout in markets overnight.


Today’s podcast

Overview:  Everyone hurts

  • Spread of COVID-19 outdoors China hits international equities difficult US indices down three-four%
  • Treasury yields approaching 2016 record lows, 10s -11.5bps
  • US revenue markets now price tag virtually three quarter-point price cuts prior to year-finish
  • Oil leads industrial commodities sell-off, down much more than four%
  • USD now struggling to extend gains as JPY recoups its secure-haven mojo

In moves comparable with early August 2019 instantly following President Trump announced that he was lifting the tariff prices on China imports and widening the variety of imports to be topic to tariffs, US and European equity markets have had a torrid evening. European equity markets suffered losses of plus or minus four% on Monday, like for the Eurostoxx 50 and German DAX

In the vein of ‘the larger they are the tougher they fall’ the NASDAQ has led the way down for US stocks, at present down just more than three% getting been down closer to four% earlier in the day. From its 19 February higher to overnight low, the NASDAQ has fallen some six.six% more than 3 days in early August, it fell by more than 7% more than the identical 3 day time-frame. It then took till the finish of October to completely recoup the losses.

As our BNZ colleagues noted earlier this morning, confirmed circumstances of COVID-19 now extend to some 30 nations, with the total approaching 80,000 and the worldwide death toll more than two,600. Italy reported much more than 200 circumstances, with 7 deaths, when the quantity of deaths rose to 12 in Iran. Afghanistan, Bahrain and Kuwait reported their 1st circumstances. The head of the Planet Wellness Organisation nevertheless says the outbreak is not a international pandemic – defined by an uncontrollable geographical spread – but the improve in the quantity of circumstances in Italy, Iran and South Korea is “deeply concerning”. He noted that when the quantity of circumstances outdoors China remained reasonably tiny, the WHO was concerned about the quantity of circumstances with no clear epidemiological hyperlink, such as travel history to China or get in touch with with a confirmed case.

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Spoking markets somewhat at the begin of the European day yesterday was an announcement from the Wuhan nearby authority than an earlier announcement that it would let some people today leave the city was produced devoid of authorisation and has been revoked. This has played to the issues that factories are nevertheless struggling to get production back to pre-outbreak levels mainly because of ongoing employees shortages, evidenced by the likes of visitors congestion in key cities run nicely under regular level for the time of year, as also pollution level in numerous cities.

Bond markets have responded in predictable style to tumbling stocks and heightening expectations that the financial effect of the viral outbreak will draw a monetary as nicely as fiscal response by some nations. US 10-year Treasury yields are at present 10bps low at 1.375%, so much less than 6bp from their record low of 1.318% in mid-2016 (this throughout what turned out to be a prolonged Fed pause following the Fed had 1st lifted the Fed Funds price target off the -.25% floor in late 2015).  US revenue markets now have a quarter-point price reduce completely priced by June and 3 price cuts virtually completely priced by the time of the November 2020 FOMC meeting (which, incidentally, begins a day following the three November US elections).

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That the USD is barely changed on Friday night’s NY close doubtless owes a thing to the creating speculation of Fed price cuts at a time when couple of other central banks have any standard policy bullets left in the chamber. This is not actually reflected in something other than the Japanese Yen even so, which has swiftly re-found its standard secure-haven attributes as nicely as the pull from decrease Treasury yields, to be more than a yen down on exactly where we left it. USD/JPY spent time above ¥112 on Thursday and Friday final week and on Monday time under ¥110.five. It is virtually like the fantastic old days of foreign exchange (for an FX Strategist at least). As for AUD, its in fact hasn’t performed considerably given that dropping from .6625 to .6600 at Monday’s market place re-open, meandering amongst .6587 and .6620. Testament possibly to how considerably negative news currently appears to be priced in at present level.

Information sensible

We had the German IFO which by and huge corroborated the message from the flash German PMIs final Friday, i.e. surprising strength or at least resilience, in this case to 96.1 for the headline reading from 96. in January and an anticipated fall to 95.two. It was led – even much more surprisingly – by the expectations sub-reading, up to 93.four from 92.9. We are going need to have to see March survey day  later subsequent month prior to we can realistically gauge the effect of the spread of the coronavirus outdoors China and the disruption to intermediate provide chains from the halt to China industrial production only now coming back on line.

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In the US the Dallas Fed was the most current of the regional Fed surveys o be released ahead of subsequent week’s ISM reports, and against showed strength inconsistent with final Friday’s Markit flash PMI, increasing to 1.two from -.two in January.

Coming up

Practically nothing of note locally now, like in NZ.

Offshore this evening in Europe it is detailed German Q4 GDP (exactly where the headline-only study final week was .%) but does any person actually care about 2019 information? The UK has the Feb CBI distributive sales survey, which could supply a lead on January retail sales

The US has the Conference Board’s Customer Self-confidence survey (following a powerful University of Michigan preliminary study earlier this month) and the Richmond Fed manufacturing index. The latter will garner much more consideration than usual in the countdown to the ISM surveys subsequent week and trepidation as to no matter if they will replicate the sharp drop in the Markit PMIs reported final Friday.

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