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.”

After it reported a decline in operating revenues and EBITDA in 2019 for its property, Wynn Macau warned that the government’s ban on visitors to Macau would have an adverse impact on its financials for 2020 but did not quantify the effect.   

   

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

DateAgencyDescriptionRating actionRatingOutlook/Credit WatchRatingOutlook/Credit Watch
28-FebS&PVirgin Australia Outlook revisionB+/BNegativeB+/BStable
27-FebS&PGajah TunggalOutlook revisionB-NegativeB-Stable
25-FebS&PCook IslandsOutlook revisionB+PositiveB+ Stable
25-FebS&PHanwha General InsuraceOutlook revisionANegativeAStable
25-FebS&PNorinchukin BanOutlook revisionANegativeAStable
24-FebS&PYuexiu TransportOutlook revisionBBB-NegativeBBB-Stable
28-FebMoody’sWanda GroupDowngradeB3Review for downgradeB1Negative
26-FebMoody’sNippon SteelDowngradeBaa2NegativeBaa1Negative
25-FebMoody’sHPCL-Mittal EnergyDowngradeBa3StableBa2Negative
28-FebFitchGuangyang AntaiDowngradeBStableB+Stable
28-FebFitchSingtelDowngradeAStableA+Negative
27-FebFitchYida China HoldingsDowngradeC CCC 
25-FebFitchJSW Steel Outlook revisionBB NegativeBB Stable
24-FebFitchShenzhen ExpresswayOutlook revisionBBB Rating Watch NegativeBBB Stable
24-FebFitchShenzhen InternationalOutlook revisionBBBRating watch negativeBBBStable
24-FebFitchYuexiu TransportOutlook revisionBBB-Rating Watch NegativeBBB-Stable
Source: S&P, Moody’s, Fitch

Umesh Desai is Asia Times Finance Editor. Prior to his current role he was at Reuters for 19 years before which he was a credit ratings and equity research analyst. A chartered accountant by training, he is based in Hong Kong.