Trade of the Day: Risk rally extends gains: stocks, futures, oil jump; gold, yen, US Treasuries shunned.
Quote of the Day: “We find a stronger correlation between Trump re-election odds in online markets and the USD than we expected. The 6-percentage point increase in Republican re-election probability has mirrored the roughly 2% move seen in DXY since the beginning of the year. There is a similar correspondence between re-election odds and the S&P… they may partly explain why US asset markets have done so well over the last week when coronavirus worries have hit asset prices abroad,” said Standard Chartered Bank strategists in a note.
Stock of the Day: Geely Automobiles jumped as much as 11.5% before closing up 5.7%. The company announced after trading ended plans to merge with Swedish affiliate Volvo Cars. Both companies are controlled by Geely Group. The move would realize synergies in cost structure and new technology development with the combined business planned to be listed in both Hong Kong and Stockholm to enable it to access the capital markets.
Number of the Day:. 69%. The surge in share prices of Sprint Corp in after the Wall Street Journal reported that a federal judge is expected to approve T-Mobile US Inc.’s merger with the company. The decision is expected to be made public on Tuesday. The two companies are America’s third- and fourth-largest mobile carriers.
Tip of the Day: “We are lowering our 2020 earnings growth forecast by 2–3ppt to 7–8%, mainly to reflect the disruption to the transportation and consumption sectors as a result of the substantial drop in travel, social activities and likely overall weaker sentiment in February and March,” said UBS’s CIO in a report which forecast that the coronavirus epidemic will peak by end-1Q and production activities will gradually normalize after the extended Lunar New Year (LNY) holiday, at least outside of Hubei province. “In the near term, we recommend sectors that will likely see demand growth as locals opt to stay home, mainly the online gaming and e-commerce sectors, and also resilient yield stocks that offer diversification benefits in a volatile market. Over the medium term, we favor leading players in the consumption sector given the likely accelerated market consolidation after the epidemic outbreak. Also, investors should consider using structures to position into sectors that will be supported by the eventual rollout of government policies to stabilize the economy, including cement and select infrastructure or industrial companies.”
Financial markets rallied on Tuesday after indications that a peak in the coronavirus infections could be in sight boosted investor sentiment. The MSCI Asia Pacific ex-Japan index advanced 0.8%, Australia’s S&P ASX 200 index rose 0.6%, and the Hang Seng index jumped 1.2%, boosted by gains in property, consumer cyclicals and technology shares. Japan’s financial markets are shut for the holidays.
Sentiment was lifted by Zhong Nanshan, an epidemiologist who helped fight the SARS epidemic in 2003, who said the situation in some provinces was improving.
“The peak time may be reached at … maybe middle or late this month,” Zhong told Reuters news agency.
Still, concerns are running high as the death toll crossed the 1,000 mark and infected cases rose above 43,000.
“The rapid spread of coronavirus will weaken China’s GDP growth sharply in the short-term, causing disruption for the rest of the world. We now expect global GDP growth to slow to just 1.9% y/y in Q1 this year and have lowered our forecast for 2020 as a whole from 2.5% to 2.3%, down from 2.6% in 2019 and the weakest annual expansion since 2009,” said Oxford Economics in a note published on Tuesday.
Also on Tuesday, Moody’s forecast Chinese property developers sales will fall in 2020 on the coronavirus impact as property centers remain closed, with travel restrictions and general precautions adding to the gloom. It said the outbreak will disrupt their fundraising plans over the next few months, although financial flexibility will be enhanced by the National Development and Reform Commission’s decision to grant permission to developers to extend quotas by six months. It said small and financially weak developers will face higher refinancing risks in the onshore and offshore bond markets.
Still, a wave of issuers are out in the market with Far East Horizon, China Zhengtong and Yiwu State Capital issuing price guidance for bonds. S.F. Holding and China Communications also issued bond mandates.
European markets are trading firm, with the Stoxx Europe 600 rising 0.7% and US S&P futures are 0.2% higher.
Looking ahead, US Federal Reserve Chairman Jerome Powell delivers his semi-annual testimony before Congress, where he is expected to talk about the economic cost of the coronavirus. Also ahead in the day, ECB President Christine Lagarde will appear at the European Parliament. She will speak during the plenary debate on the ECB’s Annual Report.