Photo: AFP/Paul Ellis

Trade of the Day: Risk dumped as China data give partial view of virus impact; gold, US Treasuries gain

Quote of the Day: “Consumption is a meaningfully more important contributor to the economy than it was in 2003 at the time of the SARS episode, and now accounts for over 70% of China’s gross domestic product (GDP) growth (versus less than 40% in 2003),” said a note from Franklin Templeton published on Friday. “This leads us to believe the drag on the economy may be more severe in magnitude than what we saw in 2003. However, a recovery may not be as speedy, as China’s economy is now not only much larger in size but also growing at a more modest rate than the double-digit rate experienced 14 years ago.”

Stock of the day: Powerlong Real Estate rose as much as 3.5% as the company completed a share buyback program. It said the buyback was made in consideration of the company’s current cash flow from operational activities.

Number of the Day:. $1 trillion – the estimated market value that online retail behemoth Amazon is expected to hit later in the day as it is seen joining Apple Inc, Microsoft Corp and Google-parent Alphabet Inc on an exclusive list of US tech giants to have reached that valuation.

Tip of the Day:  “We expect the government to provide support swiftly in the form of tax benefits and subsidies, especially for SMEs, and a further push on infrastructure investment. We also expect a targeted reserve requirement ratio (RRR) cut and a 5bps cut to the medium-term lending facility (MLF) rate in February,” said Standard Chartered Bank economists in a note published on Friday.

Financial markets were rattled as the coronavirus death count mounted and more countries announced travel bans to China after the World Health Organization declared that the outbreak of 2019-nCoV constitutes a Public Health Emergency of International Concern. The WHO, however, did did not recommend any travel or trade restrictions, lifting Australian and Japanese stocks. The Australian benchmark S&P ASX 200 edged up 0.13% and the Nikkei 225 index rose 0.99%. But continued losses in the Hong Kong benchmark pulled down the MSCI Asia Pacific ex-Japan index by 0.53%. Hong Kong’s Hang Seng index fell 0.52% with acute losses in insurance, energy and basic materials sectors. Meanwhile even as China and WHO moved to contain the coronavirus the death toll has reached 213 and reported infection cases are approaching the 10,000 mark.

The economic impact of the virus was reflected in the weak economic data as China’s official Purchasing Managers’ Index (PMI) showed manufacturing activity weakened. The PMI fell to 50.0 in January from 50.2 in December, according to China’s National Bureau of Statistics.

“Headwinds to growth will become more intense in the coming months. Not only should the damage from the Coronavirus become obvious before long, but property construction is slowing. This will make monetary stimulus even more likely in the months ahead than before the virus outbreak,” Capital Economics said in a report.

The report said the Caixin PMI survey, conducted during January 12th-24th and to be released next week, might provide a picture of the damage the virus did in its earliest days.

European stocks and US futures reflected the gloomy mood as the Stoxx Europe 600 index eased 0.5% and the futures on the S&P 500 fell 0.6%. But the British pound advanced 0.2% after the Bank of England kept rates on hold.

““With political uncertainty abating, private business surveys are starting to signal a rebound in business confidence, which should translate to a recovery in business investment and GDP growth. We continue to forecast UK interest rates to remain on hold for all of 2020, with a possible single 0.25% hike in 2021,” said Azad Zangana, Senior European Economist and Strategist at Schroders.

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