(These are solely the views & opinions of KVP, & do not constitute any trade or investment recommendations. By the time you synthesize this, things may have changed.)
Macro Dragon: +20,000 Cases, +425 Deaths + Iowa
2019-nCoV Update Tue Asia Mrn 4 Feb…
Quick update & thoughts on the Virus since Monday check in:
- Overall the market price action Mon in Asia was better than KVP was expected – clear tell or lack of correlation in the better than expected risk-off as China came back in, was USDCNH which continued punch up through 7 & as of this morning sits at about 7.0216 +0.11%.
- As of this Tue Asia morning, the “official figures” are at c. 20,624 confirmed cases, +425 deaths & c. 621recovered. KVP reckons closer conservative number of infected is likely +25,000 to 50,000 on the mainland… & before its all over we are likely going to be well in the 6 figures…
- While no doubt efforts on the ground definitely having a positive impact. Yet when you just consider that Wuhan was a home of 11m people, & that likely 5m left for the annual Lunar holiday & maybe another 1m when the countdown to the blockade was announced – given how quickly the virus seems to spread (remember unlike SARSs the 2019-nCoV spreads before the symptoms, so those temperature checks in the airport are more for aesthetics, politics & public assurance – in actuality they are not going to marginally change anything by themselves, but they do send a strong message for people to self-police their own behavior) that 20K number is just too low & one could even argue 100K is too low.
- Out of China the countries with confirmed cases over 10 are: Japan 20, Thailand 19, Singapore 18, Hong Kong 15 (still amazing to KVP only 15 in HK), South Korea (15), Australia 12 (+2 from Mon), Germany 10 (+2 from Mon),US 11 (enters our above +10 threshold), Taiwan 10. More importantly we still only have one death out of China that was in the Philippines & linked to a Chinese individual from Wuhan.
…Iowa Causes, State of the Union, RBA & Rest of the week…
In yesterday’s Macro Dragon we covered all these points – three of which take place over the next few hours. The Iowa results are likely to be the biggest potential market mover today with a Sanders or Warren skew likely to be very bearish for US EQ & thereby RoW EQ – whilst a Biden win would be quite bullish & could overshadow the concerns around the virus for a day or so.
Bear in mind tmr we get the key ISM Non-Mfg out of the US 55.1e 55.0p. Overnight US ISM Mfg. beat very strongly 50.9a 48.5e 47.2p, with a lift up in prices as well 53.3a 52.0e 51.7p. Different day, same ol’ US outperformance vs. the RoW – again!
The coronavirus deflationary shock to China/Asia is likely only going to create a reflexivity cycle in that US outperformance vs. the RoW for the near-term. At some point we will get a China bounce (back log, stimulus, etc) – yet that could be 2Q at the earliest & may be 2H20 economically.
From the RBA’s side, the prob of a cut has gone down to c. 20% - yet you have to think they need to take in the devasting fires into their calculus (potential lost tourism, jobs, etc. for what could be a long period), vs. now this deflationary shock. They also need to measure that vs. the paradox of MP inversely linked to FP. I.e. the more the RBA continues to do, the less pressure & lower probability of a fiscal policy response that’s needed. This is the biggest structural flaw that central bankers – especially in Europe – failed to fully grasp & likely don’t appreciate to this day. The good news for the Australians is their government balance sheet (unlike their private individuals balance sheet) is one of the least levered in the world – so plenty of room to fund some much needed fiscal policy response.
Have a fantastic wk ahead everyone, good luck on the month start, stay healthy as well as keep your mind open to profitable & abundant opportunities. Life happens for us, not to us.
Some Anchor Pieces from #SaxoStrats: