Customers wear protective masks as they order food from a stall in Shanghai on February 14, 2020. Photo: Noel Celis / AFP

Trade of the Day: Stocks, futures tiptoe higher; US Treasuries and gold see strong demand.

Quote of the Day: “These days we encounter an almost universal consensus that a persistent lack of inflation will allow global central banks to prop up carry trades across asset classes, including EM debt. But EM is not Europe or Japan. Loose policy – maintained long enough – is likely to generate inflation. Thus, inflation risk premium appears too low. The “trade” is not for higher real rates though as central banks will likely stay dovish for a while – as long as the Fed does so. Rather, we like being long risk (equities, credit) in combination with inflation protection,” said BofA Securities analysts in a note.

Stock of the Day:  Property management firm S-Enjoy Service Group rose as much as 7.8% after it said profits would rise by 80% in the year to December 2019.

Number of the Day:. 200%. The rise in price of palladium prices since 2015. This has sparked an upsurge in thefts of catalytic converters in London, with the city reporting a jump from 867 cases in 2015 to 8,248 cases in 2019.

Tip of the Day:  “We believe more high-tier cities would introduce similar measures in the following weeks given their stronger fiscal conditions, and T1/2-city developers would be the key beneficiaries. In particular, we believe developers with high leverage/tight cashflow (e.g. Sunac and Ronshine) and those with relatively small landbank (e.g. CIFI) would benefit more,” said Jefferies in a note.

Financial markets stayed buoyant even as the infections count continued to rise and the death toll climbed, on the belief the economic hit from the epidemic would be brief and a rebound would follow soon.

MSCI Asia-Pacific ex-Japan index edged up 0.14%, Australia’s S&P ASX 200 0.38% but Japan’s Nikkei 225 fell 0.59% after index heavyweights Fast Retailing and Nissan Motor tumbled. Nissan lowered its profit forecast and said it will not pay dividends, which sent its shares down. Hong Kong’s Hang Seng index added 0.31% as property, basic materials and banking sector drove gains.

European stocks are higher with the Stoxx Europe 600 advancing 0.25% and Wall Street could also open on a firm note with the S&P Futures climbing 0.2%.

“We see a sharp but temporary interruption to 1Q20 GDP in Asia ex-Japan,” said Morgan Stanley in a report outlining three scenarios with regard to how quickly production activity can resume in China to map out the growth/policy implications.

“Beyond the near-term growth interruption, we expect a recovery to follow. Once the coronavirus outbreak peaks, production normalization and restocking will likely drive the first phase of a growth pickup. The export recovery, which was underway before the outbreak, will likely reassert its trend. Continued policy easing will also provide support,” Morgan Stanley analysts said.

Analysts are underlining the importance of stimulus, which they said would come in different forms.

”We estimate that the total fee and tax cuts for corporates and individuals will be 2 trillion yuan at least in 2020. Plus there could be more by way of government subsidies. Special relending programmes will benefit corporates directly and individuals indirectly,” said Iris Pang, Greater China economist at ING Bank.

In the week ahead, the flash PMI surveys will be eagerly awaited to provide a glimpse of how the global economy has fared during the coronavirus outbreak.

“The concern is that slumping demand from China, a downturn in travel and tourism and supply chain disruptions will have all dampened growth in February in which the February PMIs being so important in helping assess both the depth and breadth of the initial impact,” IHS Markit economists said in a note.

The extent of the economic damage will depend on how fast the growth in infections subsides and the timeline for the reversal.

“Based on our insurance team’s epidemiology model, we forecast infected toll growth will decline to 4% by the end of this week, and the infected toll will peak at ~85k people by mid-March,” said JP Morgan in a report.

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