The broader risk-off sentiment continued last week amid heightened coronavirus (or Wuflu) concerns, fears were compounded by the WHO’s declaration that the outbreak is a global health emergency. The yield on the 10-year US Treasury rallied 18bps to 1.51%, and the 30-year briefly dropped through the 2% psychological level for the first time since October last year. Oil plummeted further as crude consumption in China has reportedly fallen by 20%, Brent is down ~13.7% since the outbreak. With oil plunging into bear market territory, OPEC+ is said to be considering deeper production cuts, and Russia’s energy minister reportedly suggested the March meeting could be brought forward. Meanwhile, haven assets once again benefited with the likes of the Japanese yen gaining a further 0.86% last week.
China stocks witnessed a meltdown this morning as markets reopened following the extended holiday. Policymakers moved to inject sizable liquidity (USD 22bn), however, this did not appear to temper market uncertainty surrounding the actual impact on the Chinese economy; but has lent some support to broader global markets. Chinese policymakers will no doubt deploy further monetary and fiscal stimulus to prop growth ahead of the National People's Congress, which is said to kick-off in early March. The offshore renminbi breached the psychological 7 level against the dollar and is currently trading above that, at time of writing. In terms of data, official PMI readings for January were broadly in-line with expectations, and the Caixin reading was released at 51.1, marginally higher than market expectations. We will have further Caixin PMI releases on Wednesday. Industrial profits did however disappoint in December, falling 6.3% yoy and are expected to fall further at the next January read, following the extended Lunar Holidays and industrial impact from Wuflu. Trade data is due to be released on Friday, along with FX reserves, all for January.
Elsewhere, the Fed held rates as widely expected. US quarterly earnings broadly beat analyst estimates with the likes of Apple and Microsoft stock soaring higher post-results. This week we will hear from more tech giants including Alphabet, Twitter, Sony and Nokia. We had a mix of US data last week: housing data broadly disappointed, while durable good orders beat market consensus in December. Q4’19 GDP was released at 2.1% and the Fed’s favoured PCE Deflator reading was released at 1.6% yoy in December. The MNI Chicago PMI print disappointed, falling to a four year low. Some election excitement is due this week with the Democtratic nomination kicking-off in Iowa. Trump is also due to deliver his State of the Union address on Tuesday, all the while the impeachment drama ensues. Durable good and factory orders are also out on Tuesday, followed by the ADP employment print on Wednesday. Other key data includes Friday’s non-farm payroll event, where the market is looking for +160k jobs added, and a bump up to average hourly earnings to 3%yoy.
Closer to home, the BoE held rates, and the UK officially exited the EU; on to the trade negotiations now, with reports suggesting PM Johnson could threaten to end trade talks with the EU if the Bloc insists on their rules. Over to the EU, Q4’19 growth unexpectedly fell in France and Italy. The ECB’s VP Luis de Guindos this morning said there are “some signs of stabilization on a global level”, adding, “There are a lot of uncertainties,” surrounding the coronavirus epidemic. We expect to get more clues once the central bank publishes its economic bulletin on Thursday. German factory orders, and Germany and France’s industrial productions figures will be of interest on Thursday and Friday, respectively.