Week Ahead – Turning A Corner On COVID-19

Investors buoyed by apparent deceleration

It’s been an eventful start to the year and not exactly in the way than anyone would have anticipated even two months ago. Once again, once the initial panic has passed, investors have taken the spread of COVID-19 in their stride, a little too much you could argue.

The initial panic was that it could be as bad as SARS, and yet, it’s been worse, and it turns out investors aren’t that worried after all. The stock market can be a very strange place at times.

Next week is typically among the quieter of the month, which means news around the coronavirus will continue to dominate. PMIs later in the week will also be of interest, as will minutes from the Fed, ECB and RBA.

Key economic releases and events

Monday, Feb 17th

Country

Relevance

Indicator Name

Period

Reuters Poll

Prior

Japan

High

GDP QQ

Q4

-0.9%

0.4%

Japan

High

GDP QQ Annualised

Q4

-3.7%

1.8%

Singapore

Medium

GDP Final QQ

Q4

0.1%

0.1%

Singapore

High

GDP Final YY

Q4

0.8%

0.8%

Singapore

Medium

Non-Oil Exports MM

Jan

-4.5%

1.1%

Singapore

Medium

Non-Oil Exports YY

Jan

-5.5%

2.4%

Thailand

High

GDP Growth YY

Q4

2.1%

2.4%

Thailand

Medium

GDP Growth QQ SA

Q4

0.4%

0.1%

Russia

High

Industrial Output

Jan

1.7%

2.1%

Indonesia

High

Trade Balance (Bln of $)

Jan

-0.27B

-0.03B

Indonesia

Medium

Exports Growth YY

Jan

1.19%

1.28%

Indonesia

Medium

Imports Growth YY

Jan

-5.66%

-5.62%

Tuesday, Feb 18th

Thailand

Medium

Annual GDP Growth

2019

4.10%

Sweden

Medium

Unemployment Rate

Jan

6.0%

Sweden

Low

Unemployment Rate SA

Jan

7.0%

6.6%

Hong Kong

Low

Unemployment Rate

Jan

3.3%

United Kingdom

High

ILO Unemployment Rate

Dec

3.8%

3.8%

United Kingdom

Medium

Avg Wk Earnings 3M YY

Dec

3.0%

3.2%

United Kingdom

Medium

Avg Earnings (Ex-Bonus)

Dec

3.3%

3.4%

Germany

High

ZEW Economic Sentiment

Feb

21.2

26.7

Japan

High

Exports YY

Jan

-6.9%

-6.3%

Japan

High

Imports YY

Jan

-1.3%

-4.9%

Japan

High

Trade Balance Total Yen

Jan

-1,694.9B

-152.5B

Russia

Low

GDP YY Monthly

Jan

2.4%

Wednesday, Fed 19th

Australia

High

Wage Price Index YY

Q4

2.2%

2.2%

South Africa

High

CPI YY

Jan

4.4%

4.0%

South Africa

Low

Core Inflation YY

Jan

3.9%

3.8%

Sweden

High

CPI YY

Jan

1.7%

1.8%

Sweden

Not Rated

CPIF Ex Energy YY

Jan

1.9%

1.7%

United Kingdom

Low

Core CPI YY

Jan

1.5%

1.4%

United Kingdom

High

CPI YY

Jan

1.5%

1.3%

Turkey

High

CBT Weekly Repo Rate

Feb

11.25%

Turkey

High

O/N Lending Rate

Feb

12.75%

Turkey

High

O/N Borrowing Rate

Feb

9.75%

Turkey

High

Late Liquidity Window Rate

Feb

14.25%

United States

Medium

Building Permits: Number

Jan

1.447M

1.420M

United States

High

Housing Starts Number

Jan

1.434M

1.608M

Canada

Medium

CPI Inflation YY

Jan

2.4%

2.2%

Canada

High

CPI BoC Core YY

Jan

1.7%

Canada

Not Rated

CPI YY SA

Jan

2.23%

United States

Not Rated

API weekly crude stocks

10 Feb, w/e

#N/P

#N/P

Thursday, Fed 20th

Australia

High

Unemployment Rate

Jan

5.2%

5.1%

Germany

Medium

GfK Consumer Sentiment

Mar

9.8

9.9

Denmark

High

Consumer Confidence

Feb

4.5

United Kingdom

High

Retail Sales YY

Jan

0.6%

0.9%

Russia

Low

Retail Sales YY

Jan

1.9%

1.9%

Russia

High

Unemployment Rate

Jan

4.7%

4.6%

United States

High

Initial Jobless Claims

15 Feb, w/e

210k

205k

United States

High

Philly Fed Business Indx

Feb

12.0

17.0

Euro Zone

High

Consumer Confid. Flash

Feb

-8.0

-8.1

United States

Not Rated

EIA Weekly Crude Stocks

14 Feb, w/e

7.459M

Australia

High

Manufacturing PMI

Feb

49.1

Australia

High

Services PMI

Feb

48.9

Australia

High

Composite PMI

Feb

48.6

Japan

High

CPI, Core Nationwide YY

Jan

0.8%

0.7%

Indonesia

High

7-Day Reverse Repo

Feb

5.00%

Indonesia

High

Deposit Facility Rate

Feb

4.25%

Indonesia

High

Lending Facility Rate

Feb

5.75%

Friday, Feb 21st

Japan

High

Jibun Bank Mfg PMI Flash

Feb

48.8

Switzerland

Not Rated

Industrial Production YY

Q4

8.0%

France

High

Markit Mfg Flash PMI

Feb

50.7

51.1

France

High

Markit Serv Flash PMI

Feb

51.2

51.0

France

High

Markit Comp Flash PMI

Feb

51.0

51.1

Germany

High

Markit Mfg Flash PMI

Feb

44.8

45.3

Germany

High

Markit Service Flash PMI

Feb

54.0

54.2

Germany

High

Markit Comp Flash PMI

Feb

50.8

51.2

Euro Zone

High

Markit Mfg Flash PMI

Feb

47.5

47.9

Euro Zone

High

Markit Serv Flash PMI

Feb

52.2

52.5

Euro Zone

High

Markit Comp Flash PMI

Feb

51.0

51.3

United Kingdom

High

Flash Composite PMI

Feb

52.7

53.3

United Kingdom

High

Flash Manufacturing PMI

Feb

49.7

50.0

United Kingdom

High

Flash Services PMI

Feb

53.4

53.9

Euro Zone

High

HICP Final MM

Jan

-1.0%

0.3%

Euro Zone

High

HICP Final YY

Jan

1.4%

1.4%

Canada

High

Retail Sales MM

Dec

0.0%

0.9%

United States

High

Markit Comp Flash PMI

Feb

53.3

United States

High

Markit Mfg PMI Flash

Feb

51.4

51.9

United States

High

Markit Svcs PMI Flash

Feb

53.5

53.4

United States

High

Existing Home Sales

Jan

5.48M

5.54M

Country

UK

This should have been a pretty normal week in the UK compared to what we’ve become accustomed to, but it didn’t quite go according to plan. The cabinet reshuffle was largely as boring as is to be expected, until Chancellor Sajid Javid resigned. In a different time, a different country perhaps, that may be seen as bad news but investors in the UK were buoyed.

While there appears to be a number of reasons behind the resignation, including demands by Boris Johnson that “no self-respecting” minister would accept, investors are considering what it means for the budget. It’s clear that, at the very least, the government will look to push the boundaries of their fiscal rules, but perhaps this indicates something more. So the market reaction suggests anyway.

US

Will Wall Street start pricing in the risk of a democratic president? Right now, the answer seems to be no. The Democrats are in the very early stages of the primary season, and right now, Bernie Sanders and Pete Buttigieg are gaining momentum. The focus shifts to the February 22nd Nevada caucuses and the February 29th South Carolina primary, with Super Tuesday on March 3rd being the main event.

Financial markets may start to get nervous if Democrats start feeling the Bern, but if Biden, Buttigieg or Bloomberg get the nomination, we may see optimism for a much higher stock market remain roughly in place.

China

Coronavirus and its global spread is still the hot topic. Thursday’s review of the data methodology caused a mild downturn in risk appetite as case numbers spiked dramatically. Central bankers appear to be viewing the virus effect as a mere speed bump for local economies, with the RBNZ basing its current monetary policy outlook on the assumption it would last six weeks, while the Fed is still on track to remain on hold throughout this year.

After the so-called good new up to Wednesday was decimated by Thursday’s revision, investors will require either a slowdown in the increase in the number of confirmed cases or a total decline to continue the relentless pursuit of returns via equities.

It has been pointed out by a colleague that it could be a win-win outlook for equities going forward – if the virus accelerates, central banks will ease policy thus supporting equities, while if the virus vanishes, the global economy can get back on track, which would again be supportive of equities.

A lack of good news on the spread and death toll from the Wuhan virus this week and next would take the edge off risk appetite, capping the equity rally and forcing flows into the usual safe havens of gold, the yen, Swiss franc, the US dollar and US Treasuries. It would again be negative for oil and industrial metals.

Hong Kong

Nothing to report from Hong Kong this week. Still “only” 50 virus cases reported to Thursday, but the second country in the league table behind China. Hong Kong data is still dismal and Tuesday’s release of January’s unemployment rate has probably got more upside potential than down.

The Hong Kong dollar is holding up well, despite the coronavirus effect and a firmer US dollar. USD/HKD is trading close to the lower limit of its trading band and it’s possible that any escalation in the coronavirus outbreak could push USD/HKD back to the upper half of the trading band and pressure the HongKong33 index.

India

India economic data continues to disappoint with industrial output dropping 0.3% in December

India still has only three coronavirus cases. Should the RBI be forced into further easing, it could pressure the rupee.

Australia

Tuesday’s release of RBA minutes is unlikely to be a headline-grabber, while Thursday’s employment report for January will be the main event. Headline numbers have been bullish of late, but most jobs added are only in the part-time category. Another strong number (with a full-time bias) and markets will consider a hawkish shift from the RBA. Mean reversion to a lower jobs number would hurt the Aussie.

New Zealand

A hawkish feel to the RBNZ’s unchanged rate announcement sent the kiwi soaring this week.

An extended virus period (Chinese are currently barred from entering NZ) would hurt the tourism sector and pressure the kiwi.

Japan

The week kicks off with Q4 GDP data, which is seen weaker overall, according to the latest surveys. The cruise ship quarantined off Japan is getting more headlines than the economy, BOJ or government. A bigger-than-expected drop in GDP would hurt equities but could benefit the yen on safe haven flows.

Singapore

Singapore’s close links with China have brought the city state to the forefront of coronavirus news, with 50 reported cases (third behind Hong Kong). The MAS has already said there is room within the NEER trading band to ease policy and we may see an inter-meeting adjustment given the next policy meeting is not scheduled until April. The Singapore dollar weakened to the lowest level since September versus the US dollar this week. Policy easing amid rising virus cases would pressure the SGD further.

Market

USD

The US economy will likely remain in a good place, but we could start to see markets become nervous on a few fronts. On Friday, February 21st, the flash manufacturing PMI releases will show how much of a slowdown is hitting the US economy in February. Incremental updates with the US-China trade war seemed destined for a sudden turn for the worse, but so far, all signs are pointing that may not be the case.

The third concern to the outlook is Fed tightening. The Fed has started announcing cuts to the size of the overnight repo operations and as the balance sheet growth grinds to a halt, sentiment for risky assets may take a blow.

Oil

The oil recovery is gathering momentum as the week draws to a close. Naturally, any bounce was likely to be decent given the scale of the declines that preceded it, but we’re now on the fourth day of gains as optimism grows among traders that the fight against COVID-19 has turned a corner, despite the setback of the midweek spike. The next test for Brent comes around $58, with WTI facing a similar test in the $53.50-54.50 region.

Gold

Undeterred by its other failures already this year, gold is creeping higher and approaching the heavily guarded $1,600 barrier. The events in the middle east last month saw gold briefly break through the defence, but this was short-lived and it hasn’t really come close since.

Back at $1,580 now, with the next test being where it fell at the last attempt, earlier this month, around $1,590. If it can get through here, then perhaps the bullish case will grow.

Bitcoin

Bitcoin has found its way above $10,000 and is holding above at the moment but that may not last. It’s been on an impressive run this year, up around 45% already, but as ever with this instrument, it has the feel of buy now, work out why later. The list of reasons for the rally so far is endless from “safe haven” to “halving” and everything in between.

The only word that hasn’t been used is hype and that’s probably the most accurate explanation, which is fine. Should it break above $11,000, interest may pick up. $10,000 attracts a lot of attention for obvious reasons, but $9,000 and $11,000 have arguably been more significant.

Original post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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