MARKET BRIEFING: Monday 3rd February 2020
Monday: AU MI Inflation Gauge, Building Approvals, JN Manufacturing PMI, CN Caixin Manufacturing PMI, Industrial Profits, SP/IT/GE/EU/UK Manufacturing PMI (F), US Manufacturing PMI, ISM Manufacturing PMI, Total Vehicle Sales, Democratic Party Primaries, US Earnings: Alphabet
Tuesday: AU RBA Interest Rate Decision, HIA New Homes Sales, JN 10-yr Auction, FR Government Budget Balance, SP Unemployment Change, IT CPI, EU PPI, UK Construction PMI, US Factory Orders, ISM NY Index, IBD/TIPP Economic Optimism, Weekly API Inventories, NZ GDT Price Index, AU Services PMI, NZ Unemployment Rate, Employment Change, US Earnings: ConocoPhilips, UK/EU Earnings: BP
Wednesday: JN Services PMI, CN Caixin Services PMI, SP/IT/GE/EU/UK Services PMI (F), EU Retail Sales, US ADP Employment Change, Trade Balance, Services PMI, ISM Non-Manufacturing PMI, Weekly DoE Inventories, CA Trade Balance, BoC's Wilkins Speaks, US Earnings: GM, Merck, Qualcomm, UK/EU Earnings: GlaxoSmithKline, BNP Paribas
Thursday: AU Trade Balance, Retail Sales, NAB Quarterly Business Confidence, GE Factory Orders, FR Industrial Investments, EU ECB Economic Bulletin, Economic Forecasts, FR 10-yr Auction, 3/5/10-yr Auction, US Initial/Continuing Jobless Claims, Challenger Job Cuts, Unit Labour Costs/Nonfarm Productivity, US Earnings: Twitter, Uber, Pintrest, EU Earnings: Sanofi, Total, Fed's Kaplan Speaks
Friday: AU RBA Monetary Policy Statement, NZ Inflation Expectations, CN Trade Balance, FX Reserves, JN Leading Index, GE Trade Balance, Current Account, FR Current Account, Trade Balance, Industrial Production, Non-Farm Payrolls, SP Industrial Production, UK Halifax House Prices, US Non-Farm Payrolls, Unemployment Rate, Average Hourly Earnings, Wholesales Inventories, Baker Hughes Rig Count, Consumer Credit, CA Employment Change, Unemployment Rate
MACRO OVERVIEW: Sunday 2nd February 2020
CHINA AND CORONAVIRUS
Chinese equities are likely to be down heavy overnight as the mainland returns from its extended Lunar New Year holiday. To give some context, the Chinese equity futures traded on the Singapore exchange are down over 8% in the past week.
As you would imagine, in order to get ahead of the anticipated rout Chinese policy makers have been out in full force ahead of the open in an attempt to shore up local markets. At last count, total confirmed cases of Coronavirus is now ~15,000 (305 deaths). Whether this will negatively impact trade in EU/US on Monday I'm not so sure. Although the WHO declared a global health emergency last week, US equities actually rallied on the relatively light approach as travel and trade remained unaffected, softening the blow on the potential negative economic implications. Second to this, no one should be surprised by a dump in Chinese equities overnight which should soften the shock factor and help intraday traders take a more rational response.
To date, 45% of the S&P 500 have reported Q4 earnings with another 94 due in the week ahead. Despite some headline grabbing numbers from the likes of Amazon and Tesla last week, US earnings season continues to be somewhat of a side order in the macro menu and this week may be no different.
Monday will be Alphabet's test to see whether it can maintain access to the exclusive $1trl club with a focus on revenue generated beyond search advertising. As a guide, 42 of the 47 analysts that cover Alphabet on Wall Street have the company on a buy or overweight rating. Wednesday is also likely to generate interest as Twitter, Uber and Pinterest all reveal their numbers. Meanwhile, in Europe it's the turn of the French giants with Sanofi, Total and BNP Paribas all reporting this week.
US NON-FARM PAYROLLS
The usual fanfare will surround US non-farm payrolls as is always the case, but the importance of the data to influence any near-term decisions from the Fed is limited. The headline figure is expected at 156k with the unemployment rate at 3.5%.
In the lead up to the Labour report we have the regular fixtures with the ISM reports, ADP employment change and US factory orders to boot. As such, unless the Coronavirus sees a serious upturn in the number of total confirmed cases the combination of data and earnings may well take centre stage for the US investor.
BREXIT MEANS BREXIT
UK Prime Minister Boris Johnson is gearing up for his first major speech post leaving the EU on Friday with reports suggesting he will continue to seek a Canada-style free trade accord with no alignment with EU rules standards. As such, we remain at the new impasse which is the standoff I anticipate will last for some months before the final deadline for extending the transition phase comes into sharper focus at the end of June.
From a GBP perspective, this means that Brexit headlines will yield little interest for immediate market movement and I would suggest looking for cues to come from USD this week and from UK economic data in the period ahead to see if the MPC’s strong belief in a post-election bounce in confidence translates into an actual economic improvement. Don’t get me wrong though, the most testing waters for Brexit are still yet to come in 2020!
RBA ON HOLD FOR NOW
The Aussie struggled last week as the implications of the Coronavirus outbreak on Chinese trade get factored into price. This of course comes in the wake of the prolonged and devastating bush fire season that has raged through the country for a number of months. As such, the RBA is expected to downgrade its GDP forecast but after better expected jobs data last week the market pricing of an immediate rate cut has been pushed back to April.
Head of Market Analysis