Financial markets are expected to face severe turmoil this week as investors react to shocking China economic data at the weekend and record losses on Wall Street that forced the US central bank to issue a statement saying, “We will use our tools and act as appropriate to support the economy.” On Saturday, China reported that its Purchasing Managers’ Index in February plunged to 35.7 from 50 in January. This is the lowest reading since January 2005 when it was first released and even lower than November 2008’s figure of 38.8 during the global financial crisis. This makes investors jittery about the private-sector Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI), which will be released on Monday. Analysts had forecast a reading of 45.7, compared with an expansionary 51.1 in January, according to a Reuters survey carried out before the Saturday data release.
Markets will also reveal for the first time what investors think about the newly appointed Malaysian prime minister, Muhyiddin bin Haji Muhammad Yassin. He was appointed on Saturday following Mahathir Mohamad’s unexpected resignation on February 24.
Global markets will also watch the Super Tuesday election day in the United States when the greatest number of states hold primary elections and caucuses to pick the Democratic Party’s nominee for the US presidential elections later this year.
At the end of the week, markets will await the non-farm payrolls data for February. The market consensus is for a 175,000 increase. Some are more upbeat.
“We expect a 195,000 increase in February’s non-farm payrolls, along with a 0.1% decline in unemployment back to the recent 3.5% low and a rise in the workweek. However, we see average hourly earnings rounding down to a 0.2% increase,” said Continuum Economics in their preview report.
Markets are also keeping a close eye on the spread of the coronavirus outside China, which has already rattled investors. The epidemic is expected to dent economic growth, and Fed watchers have started to bring forward their expectations of a rate cut by the US central bank.
“We now expect the FOMC to ease at its April 20 and June 10 meetings (on hold, prior) in response to the risk that coronavirus disrupts US and global activity, taking the Fed funds rate (upper bound) to 1.25% by end-Q2 and end-2020 (previously 1.75%) and 0.75% by end-2021 (previously 1.25%),” said Steve Englander, head of G10 FX Research at Standard Chartered Bank.
But Goldman Sachs economists are forecasting a recovery in the latter part of the year and therefore see the Fed acting much later.
“We expect a larger coronavirus drag on growth, but expect an eventual recovery will partially offset the hit to full-year GDP. In response to coronavirus risks, we now expect the Fed to cut rates by 75bp by June,” they said in a note published on Saturday.
Fund flow
Reflecting the risk-off sentiment, last week investors pulled out money from risky assets fleeing to the relative safety of high-quality bonds. “Outflows from all EPFR-tracked Equity Funds climbed to a 22-week high while, on the fixed income side, redemptions from Bank Loan, High Yield Bond and Alternative Funds hit 39, 54 and 70-week highs respectively,” said EPFR, a fund data provider.
It said technology sector funds ended February by posting a new weekly inflow record with eight of the 11 major groups tracked by EPFR took in fresh money. Financials, Industrials and Healthcare/Biotechnology Sector Funds were the three groups to experience net redemptions.
“EPFR-tracked Bond Funds pulled in over $12 billion during the week ending February 26 that took their year-to-date total close to the $170 billion mark. Investors committed over $5 billion to both US and Global Bond Funds, with the latter posting a new weekly record,” it said.
Companies in focus
HNA group bonds and stocks will be watched after it said in a statement on Saturday that “to effectively address the remaining risks and protect the interests of the related parties, at the request of HNA Group, the People’s Government of Hainan Province established the “HNA Joint Working Group of Hainan Province.” While this is being interpreted as its effective takeover by the government, the company clarified that that is not the case.
In a statement to the Hong Kong Stock Exchange, group company HNA Technology said “Such adjustments of the management structure of HNA Group neither lead to the change in actual control of HNA Group, nor affect daily production and operation.”
Data calendar
| Monday, March 2, 2020 |
| Australia PMI, inflation, jobs |
| China Caixin PMI |
| EU PMI |
| UK PMI, consumer credit, money supply |
| US Markit PMI, ISM PMI |
| Tuesday, March 3, 2020 |
| Australia housing data, current account balance |
| RBA rate decision |
| US Democratic Party Super Tuesday |
| Japan consumer confidence, monetary base |
| Switzerland GDP |
| EU PPI, CPI, unemployment |
| US Redbook index |
| Wednesday, March 4, 2020 |
| Federal Reserve Evans speech |
| Australia GDP |
| China Caixin Services PMI |
| EU services PMI, composite PMI, retail |
| US Markit Services PMI, ISM non manufacturing PMI, ISM employment |
| Bank of Canada rate decision |
| Federal Reserve Beige book |
| Thursday, March 5, 2020 |
| Japan foreign investments in stocks,bonds |
| Australia imports, exports, trade balance |
| OPEC meeting |
| US jobless claims, non farm productivity, factory orders |
| Bank of Egland Carney speech |
| Friday, March 6, 2020 |
| Australia retail sales |
| Japan foreign reserves, household spending |
| Germany IP, factory orders |
| France imports, exports, trade balance |
| UK housing data |
| US non farm payrolls, trade balance |
| Saturday, March 7, 2020 |
| China export, import, trade balance, foreign reserves |
LAST WEEK’S RATING CHANGES
TO FROM
| Date | Agency | Description | Rating action | Rating | Outlook/Credit Watch | Rating | Outlook/Credit Watch |
| 28-Feb | S&P | Virgin Australia | Outlook revision | B+/B | Negative | B+/B | Stable |
| 27-Feb | S&P | Gajah Tunggal | Outlook revision | B- | Negative | B- | Stable |
| 25-Feb | S&P | Cook Islands | Outlook revision | B+ | Positive | B+ | Stable |
| 25-Feb | S&P | Hanwha General Insurace | Outlook revision | A | Negative | A | Stable |
| 25-Feb | S&P | Norinchukin Ban | Outlook revision | A | Negative | A | Stable |
| 24-Feb | S&P | Yuexiu Transport | Outlook revision | BBB- | Negative | BBB- | Stable |
| 28-Feb | Moody’s | Wanda Group | Downgrade | B3 | Review for downgrade | B1 | Negative |
| 26-Feb | Moody’s | Nippon Steel | Downgrade | Baa2 | Negative | Baa1 | Negative |
| 25-Feb | Moody’s | HPCL-Mittal Energy | Downgrade | Ba3 | Stable | Ba2 | Negative |
| 28-Feb | Fitch | Guangyang Antai | Downgrade | B | Stable | B+ | Stable |
| 28-Feb | Fitch | Singtel | Downgrade | A | Stable | A+ | Negative |
| 27-Feb | Fitch | Yida China Holdings | Downgrade | C | CCC | ||
| 25-Feb | Fitch | JSW Steel | Outlook revision | BB | Negative | BB | Stable |
| 24-Feb | Fitch | Shenzhen Expressway | Outlook revision | BBB | Rating Watch Negative | BBB | Stable |
| 24-Feb | Fitch | Shenzhen International | Outlook revision | BBB | Rating watch negative | BBB | Stable |
| 24-Feb | Fitch | Yuexiu Transport | Outlook revision | BBB- | Rating Watch Negative | BBB- | Stable |
| Source: S&P, Moody’s, Fitch |