Global Macro Strategist
Summary: Macro Dragon = Daily Cross-Asset Global Views
Today we glance over BoJ wash & potential US/EU Tech Tues. We also check in on the SARs like coronavirus that is hitting China as the Lunar New Year Migration (+3bn trips) is in the works with next wk being Chinese New Years. This has already had an equity price impact on leisure, travel as well as drug making China stocks overnight. Will be interesting to see if we get any US leadership for the bulls, as they get back in post MLK Mon.
2020-Jan-21
So US back in today after MLK mon, which may bring some more leadership for the equity bulls – Europe was down across the board yest, with the key divergence to the upside being the DAX +0.17% 13548.
Remember the key near-term market risk highlighted yest that could reverse the DAX & further damped European equities. If we get a US/EU fallout (Trump vs. Macron), then we could have a brand new trade war. And yes, it would be classic Trump scrapbook playbook (if there is such a thing) – put out the window dressing exercise fire with China (for now), then immediately start a new one up with the EU (threaten their dax autos)
If a virus could pick an opportune time to hit the China, then there really is no better time for potential spreading than during the Chinese lunar new year, which marks the biggest annual human migration in the world. According to Bloomberg up to 3bn trips (railways, airlines, cars, boats, etc) will be done over this period. The new coronavirus is similar to the SARS virus which killed 800 people 17hrs back – whilst that is not large on the greater scale of the population of HK (where it broke out), it caused massive hysteria & panic during a small period, where people were literally giving away their homes for peanuts.
Whilst the situation is dynamic & fluid - So far its reported that over 200 people are ill, with Wuhan (city of 11m) looking like location-zero. So far there have only been 3 confirmed fatalities linked to the virus, which – early days – potentially suggests a lower mortality rate than say MERs which kills up to 1/3 of those it infects. SARS on the other hand, had a fatality rate closer to 10%.
There have also been at least 4 confirmed cases of people who have left China (2 in Thailand, 1 in Japan & at least one in South Korea) that are infected with the corona virus. That number itself, suggests that statistically there should be a lot more ill people on the ground.
China has stepped up its speed in disclosure & transparency compared to previous outbreaks which is a huge positive for everyone. Obviously potential outbreaks are a fine line for any government – your priority is to contain, as well as educate the public, yet the last thing you want to do is induce a panic (i.e. some of the misinformation & lack of education in Ebola cases in Africa were just downright diabolical).
There is no doubt that eventually the virus will be contained – its just a question of when & does it scale in magnitude. Hard to see a case where this becomes super negative for CH (& proxy HK) equities, unless it somehow induces local panic selling – yet things would have to get dramatically worse for such a scenario. It would then be retail, travel & leisure stocks being hit, whilst biotech, healthcare plus defensive names would get bid. Still we got a taste of that overnight, with some CH drug makers having limit up days while Macau names & airlines had a tough session – obviously when the virus gets nipped in the bud, these moves should potentially mean-revert.
The WHO is conducting an emergency meeting not immediately on Wed Jan 23 in Geneva, which could determine whether this gets raised to international status concern. Which to KVP is the paragon of incompetence & disconnected elitism in regard to procedures: any outbreak, anywhere in the world where the virus is jumping from human to human is of international concern.
One great thing about Asia – for those who have not traveled – is most airports have standard checkups for flus & sickness through temperature cams & officials monitoring travelers from potential high risk destinations. Talk about a role with a negative skew, if your successful in your job there is a chance you may catch something (like being a water digger - assuming you get paid per hour).
End of the day, this is one to keep watching. And its worth noting that they have cured over 25 people who have caught the virus so far.
Have a great wk everyone, good luck out there & don’t forget to keep your mind open to opportunities. For those travelling over Chinese New Year’s; Godspeed, smooth travels & have a well deserved break with loved ones. The year of the metal rat is going to be phenomenal!
Namaste
-KVP
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
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