Global Macro Strategist
Summary: Today all about digesting latest coronavirus figures, now +20,000 cases & +425 deaths in China. We also have RBA, Iowa Causes Results & State of the Union Speech. A Bernie Sanders or Elisabeth Warren win, could derail the strong risk-on equities price action we are seeing this Tue Asia morning.
2020-Feb-04
Quick update & thoughts on the Virus since Monday check in:
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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.
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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.
Namaste,
-KVP
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