Trade of the Day: Stocks and risk assets sold as China markets resume; But European, US futures up.
Quote of the Day: “With Eurozone growth likely to remain low this year, inflation stubbornly low and core government bond yields largely negative, there are growing worries about its possible ‘Japanification’ – in other words, that it will suffer an extended period of slow or negative growth and inflation,” said Markus Muller, Global Head Chief Investment Office at Deutsche Bank Wealth Management.
“The Eurozone and Japan currently rely on Quantitative Easing (QE) and low or negative base rates, but are struggling to cope with low growth and low inflation. The Eurozone also faces similar (but not identical) structural problems related to public and financial sector debt, ageing, and somewhat inflexible markets.”
Stock of the day: The Hong Kong exchange continues to see buying into stocks with linkages to the coronavirus. Fusen Pharma, Monday’s top gainer, rose as much as 250% even as the company said “the Group has not carried out any research activities on the effectiveness of Shuanghuanglian Oral Solutions for inhibiting the novel coronavirus, and made no representation and warranty on such effectiveness.” This followed media reports that Shuanghuanglian Oral Solutions had the potential to be used for inhibiting the novel coronavirus.
Ascletis Pharma rose as much as 57% on Monday after it said clinical trials were being conducted on some of its products which are used in the treatment of patients infected with the new coronavirus.
Number of the Day: $5.6 million. The cost of a 30-second commercial spot at this year’s Super Bowl. The Kansas City Chiefs ended a 50-year Super Bowl drought with a dramatic 31-20 comeback win over the San Francisco 49ers on Sunday.
Tip of the Day: “Gold prices have benefitted from a flight to safety amid a risk-off environment as equity markets have eased. However, gold’s strongest correlation continues to be with real yields; we believe lower yields, coupled with elevated geopolitical and political uncertainty towards the end of the year, are likely to buoy prices,” said Standard Chartered precious metals analyst Suki Cooper in a note. “We continue to see sustained upside risk to gold prices in H2-2020,” adding that the US dollar weakness would “add a string to gold’s bow.”
Asian markets were led lower by Chinese stocks as trading resumed on the mainland after the extended holiday. The People’s Bank of China said it would inject 1.2 trillion yuan to “maintain reasonable and abundant liquidity of the banking system and stable operation of the currency market,” but the market was worried about the economic impact of the coronavirus. China’s CSI 300 Index plunged as much as 9%. This brought the MSCI Asia Pacific ex-Japan index down by 0.9%. Japan’s Nikkei 225 index ended down 1% and Australia’s S&P ASX 200 benchmark retreated 1.3%. But Hong Kong’s Hang Seng benchmark edged up 0.3% as losses in energy and basic materials were offset by gains in technology and healthcare.
“The slump in mainland Chinese stock markets reflects escalating financial market concerns about the economic impact of the Wuhan virus on overall economic growth, as the total number of Wuhan virus cases in mainland China soared,” said Rajiv Biswas, Asia Pacific Chief Economist at IHS Markit.
Even though the Caixin manufacturing PMI for January, published on Monday, showed a decline. Analysts said the survey was conducted too early to tell us much about the extent of the economic damage from the coronavirus outbreak. “The February survey data will almost certainly point to a significant drag on activity from the virus, with policymakers likely to take further action in the coming weeks to soften the blow,” said Capital Economics analysts in a note.
HIS Markit’s Biswas said most Chinese provinces had postponed the reopening of factories and offices until Monday, February 10, which will have a significant negative impact on China’s industrial production in Q1 2020.
And downgrades are coming in fast and furious. UBS downgraded its growth forecast for the Chinese economy to 5.4% from 6%.
“We expect consumption to be hit significantly, especially in travel and tourism, hotel and catering, and transport. We think overall retail sales growth could weaken by at least 5ppts in Q1,” said UBS Head of Asia economics and Chief China economist Tao Wang.
But Wang added: “As the coronavirus is a one-off negative shock, we expect China’s GDP growth to rebound to 6% in 2021 as activities normalize.”