Category: Briefings

Summary and Price Action Rundown

Global risk assets are extending yesterday’s rebound this morning as stabilization of mainland Chinese markets overnight lifts sentiment, as investors weigh concerns over the coronavirus outbreak against broadly supportive corporate earnings. S&P 500 futures point to a 1.2% gain at the open, which would halve the index’s current 2.4% downside from its record high earlier this month. As witnessed last week, investors are attempting to look past the impact of the viral outbreak emanating from central China but the general mood is cautious and volatility levels remain elevated. Overnight, equities in Asia took their cue from the recovery of the Shanghai Composite, which overcame early losses to gain 1.3% on the day (more below), and EU equities are posting similar upside. Treasuries are continuing to retrace a modest portion of their recent rally, which has been driven by safe haven demand, with the 10-year yield edging further above three-month lows at 1.57%. The dollar is flat as the renminbi steadied. Even beleaguered crude oil markets are posting some upside, though Brent remain near multi-month lows below $55 per barrel despite some indications of additional OPEC efforts to support prices.

Coronavirus Risk Remains in Focus

As investors continue to monitor the pace of the outbreak, risk asset upside is being fueled by hopes of responsiveness to antiviral drugs and last night’s rebound in mainland Chinese markets. The Shanghai Composite recovered from early losses after losing 7.7% yesterday in a volatile reopening after being closed for more than a week on an extended Lunar New Year holiday break. Official and unofficial state support is being credited with helping the index bounce back. Specifically, the People’s Bank of China injected liquidity for a second straight session after providing 1.2 trillion renminbi to domestic banks on Monday, alongside modest cuts of certain policy rates, a ban on short-selling stocks, and reports of major equity purchases by large state-owned insurance companies. The renminbi also retraced yesterday’s losses, appreciating past the closely-watched 7 to the dollar level. Still, virus-related headlines are keeping investors on edge, with reported infections rising to 20,679 and fatalities to 427, as more governments around the world impose travel restrictions on mainland China.

 Isolated Disappointments Amid Broadly Upbeat Corporate Earnings

Although fourth quarter (4Q19) corporate reports generally continue to impress, Google joined Facebook in registering a rare downside surprise. Google topped earnings estimates but fell short of projected revenues in its 4Q report that followed yesterday’s closing bell, sending the IT giant’s stock price 3.8% lower in pre-market trading. Of the so-called FAANG stocks (Facebook, Amazon, Apple, Netflix, and Google), which together have accounted for a disproportionate amount of S&P 500 upside in recent years, results from both Facebook and Google for last quarter left analysts underwhelmed, while the others topped estimates. Meanwhile, ahead of its earnings report today, shares of Gilead Sciences rose 5.0% yesterday on news that the company is offering an experimental drug to treat the new coronavirus. The drug, called Remdesivir, is not licensed or approved in any country but is being used as emergency treatment in some cases. The company is working closely with the Chinese government to treat patients. Today also features reports from Ford, Disney, and ConocoPhillips. Of the 233 S&P 500 companies that have reported 4Q19 results, 75% have topped earnings expectations and 63% have beaten sales estimates. The rest of this final week of peak earnings reporting season includes reports from Aflac, Allstate, Prudential, Clorox, Chipotle, GM, MetLife, Qualcomm, Kellogg, Philip Morris, T-Mobile, Tyson Foods, and Twitter.

          Additional Themes

Traders Note Commerce Department Currency Rule – Yesterday, the US Commerce Department published a rule first proposed last spring that will allow the agency to apply tariffs to counteract the impact of undervalued currencies in response to complaints brought by individual US companies. There has been no immediate market reaction, and global currency volatility remains exceptionally subdued. Analysts are comparing this policy with the Treasury Department’s biannual foreign exchange report, which designates which countries are manipulating or on watch for manipulation of their currencies based on a mix of fixed criteria and official judgement, but provides little in the way of enforcement mechanisms. For context, China was designated a currency manipulator by the Treasury Department last August at the height of the US-China trade fight, but the designation was lifted in advance of the Phase One agreement signing and was never included in the official Treasury foreign exchange report.

US Politics Remain a Backburner Issue for Markets – Analysts are noting the ongoing confusion over the results of yesterday’s Democratic caucus in Iowa and will monitor tonight’s State of the Union address, but no discernable market reactions are expected. US politics are unlikely to be a significant driver of price action until closer to the election in November.

Summary and Price Action Rundown

Global risk assets are attempting to stabilize this morning after Friday’s sharp decline and severe losses for newly reopened mainland Chinese markets overnight, as investors weigh concerns over the coronavirus outbreak against broadly supportive corporate earnings. S&P 500 futures indicate a 0.4% gain at the open, which would pare the index’s 3.1% downside from its record high earlier this month. Last week, investors had been attempting to look past the impact of the viral outbreak emanating from central China but by Friday the growing uncertainty prompted a steep US equity selloff and volatility levels remain elevated. Overnight, equities in Asia were mixed even as mainland Chinese markets suffered significant downside upon reopening from the Lunar New Year holiday. Meanwhile, EU equities are posting modest gains. Treasuries are retracing a portion of their recent rally, which has been driven by safe haven demand, with the 10-year yield edging above three-month lows at 1.54%. The dollar is stronger as the pound and renminbi both decline around 1% (more below). Crude oil is extending its steep downtrend as Brent prices sink to multi-month lows below $57 per barrel.

Volatility Remains Elevated Amid Coronavirus Concerns

As investors continue to monitor the pace of the outbreak, mainland Chinese markets opened to heavy selling even as authorities attempted to cushion the blow, while US stocks are set to stabilize after Friday’s plunge. The Shanghai Composite reopened to major declines after being closed for more than a week on an extended Lunar New Year holiday break. Losses of nearly 10% marked the intraday low, with support from various policies helping the index recover to a session decline of 7.7%. Specifically, Chinese officials effected a variety of supportive initiatives, including a People’s Bank of China liquidity injection of 1.2 trillion renminbi into domestic banks, modest cuts of certain policy rates, and a ban on short-selling stocks. The renminbi, meanwhile, lost 1.1% versus the dollar, depreciating past the closely-watched 7 level, matching losses already reflected in last week’s offshore renminbi trading. Headlines over the weekend kept investors on edge, with reported infections rising to 17,485 and fatalities to 362, as more governments around the world impose travel restrictions on mainland China. Nevertheless, US equities are attempting to recoup some of Friday’s nearly 2% losses, which were spurred by fears of adverse developments while markets were closed on Saturday and Sunday.

 Corporate Earnings Remain Supportive of Equities

Although fourth quarter (4Q19) corporate reports generally continue to impress, coronavirus-related risk aversion has capped gains. Amazon returned to the $1 trillion market club on Friday, which includes Apple Google and Microsoft, after 4Q earnings smashed expectation and the company also gave upbeat guidance for 1Q20. Shares rose 7.4%. Also, IBM jumped 5.1% after the computer software company announced CEO Ginni Rometty will step down in April. Rometty, who has served at the helm of the company since 2012, will be replaced by Arvind Krishna. Shares of Colgate-Palmolive rose 6.2% after 4Q19 sales beat consensus expectations and in-line earnings. Meanwhile, Caterpillar’s stock fell 3.0% after 4Q earnings of revenue fell 8% from a year earlier and missed analyst’s expectations. The company also provided a guarded outlook due to “global economic uncertainty.” Of the 225 S&P 500 companies that have reported 4Q19 results, 74% have topped earnings expectations and 64% have beaten sales estimates. This is the final week of peak earnings reporting season, and features Google, Aflac, Allstate, Prudential, Clorox, Chipotle, Disney, Ford, GM, MetLife, Qualcomm, Kellogg, Philip Morris, T-Mobile, Tyson Foods, and Twitter.

          Additional Themes

OPEC Seeks to Support Oil Prices – With the impact of the coronavirus on oil demand worsening an already challenging outlook, and Brent crude trading at its lowest level since August, headlines this morning indicate that OPEC is considering an emergency meeting to push for additional supply cuts to support prices. For context, reports this morning that China’s oil demand has dropped 20% during the coronavirus outbreak sent crude oil prices spiraling downward but the OPEC news has roughly halved the losses to 2.6%. February 14-15 are said to be the dates under consideration for the OPEC meeting, amid estimates of a potential 500k barrel per day coordinated output cut, though Iran and Russia are reportedly reluctant.

Pound Slides Post-Brexit – To start its first full week of trading following the UK’s official departure from the EU on Friday, the pound is 1.1% lower versus the dollar as the focus shifts from Brexit to the upcoming challenge of forging a trade agreement between the EU and UK. Even so, the pound remains well off August’s multi-year lows. Today’s speech by Prime Minister Johnson emphasized his willingness to reject an unfavorable post-Brexit trade deal with the EU while Chief EU negotiator Barnier stressed that the UK will need to remain bound by an array of EU standards in any future trading relationship.

Summary and Price Action Rundown

Global risk assets are lower again this morning after yesterday’s intraday comeback, as markets struggle to find direction amid growing concerns over the coronavirus outbreak but broadly supportive corporate earnings and decent growth indicators. S&P 500 futures point to a 0.3% loss at the open, which would add to the index’s 1.4% downside from its record high earlier this month. In recent days, investors have been attempting to look past the economic impact of the viral outbreak emanating from central China but uncertainty remains high and volatility levels are elevated (more below). Overnight, equities in Asia were mixed as selling pressure increased going into the weekend. Meanwhile, mainland Chinese markets remain closed for the Lunar New Year holiday, with the reopening delayed until Monday at the earliest. EU equities are under moderate pressure as well, losing 0.4%. Treasuries continue to benefit from safe haven demand, with the 10-year yield revisiting yesterday’s three-month lows at 1.56%, while the dollar is once again little changed. Crude oil, however, is pausing its steep downtrend as Brent prices hold above $58 per barrel, near their lowest level since August.

Wuhan Virus Outbreak Keeps Investors on Edge

Although sentiment steadied yesterday following measured statements from the World Health Organization (WHO), selling pressure has reemerged as the debate among investors over the potential trajectory and fallout from the Wuhan virus outbreak continues to play out in financial markets. Headlines overnight have once again darkened the market mood ahead of the US trading session, and like last Friday, investors may be prone to reduce equity and other risk asset positions ahead of the weekend on fears of adverse developments while markets are closed on Saturday and Sunday. Yesterday, the WHO declared the Wuhan virus a global emergency, after withholding that designation last week, but declined to recommend limiting trade and movement, buoying hopes for a limited economic impact of the outbreak. However, Goldman Sachs is estimating today that the virus will shave 0.4 percentage points off first quarter 2020 US GDP and reports indicate that roughly two-thirds of China’s economy will remain shuttered next week. For context, the S&P 500 has been alternating between gains and losses this week, as uncertainty over the impact of the virus offsets generally upbeat earnings results (more below). Total reported cases continue to climb, along with fatalities, with these tallies now reaching 9,776 and 213, respectively. More countries are tightening travel restrictions to China, with the US State Department issuing a “do not travel” recommendation, while Italy declared a state of emergency, although officials called it “precautionary.”

 Corporate Earnings Remain Broadly Upbeat Despite Isolated Disappointments

Impressive results from Amazon yesterday afternoon are balancing the drag from Facebook, as fourth quarter (4Q19) corporate reports generally continue to impress. Shares of Amazon are up 8.8% after the consumer giant handily topped estimates after yesterday’s closing bell. This follows a downbeat report from Facebook, which sent its stock 6.1% lower yesterday after the company reported a 51% rise in expenses related to the company’s privacy and security improvements. Meanwhile, Tesla surged 10.3% as management said that they expect positive cash flow and net income on a regular basis going forward. Coca-Cola also rallied, gaining 3.3% after 4Q earnings topped estimates. Verizon, Dupont, and Truist Financial were among the few disappointments. Caterpillar, Honeywell, Exxon Mobil, and Chevron issue reports today to close a busy and generally impressive week of earnings. Of the 212 S&P 500 companies that have reported 4Q19 results, 74% have topped earnings expectations and 64% have beaten sales estimates. Next week features Google, Aflac, Allstate, Prudential, Clorox, Chipotle, Disney, Ford, GM, MetLife, Qualcomm, Kellogg, Philip Morris, T-Mobile, Tyson Foods, and Twitter.

          Additional Themes

Mixed Global Economic Data – Eurozone GDP expanded just 0.1% quarter-on-quarter in 4Q19, putting growth at a meager 1.0% on the year, sinking below 3Q’s 1.2% pace and undershooting the 1.1% forecast. Regional inflation remained limp as well, with a gauge of January’s core consumer prices reflecting a dismal 1.1% versus 1.2% expected and the prior month’s 1.3%. Meanwhile, China’s purchasing managers’ indexes (PMIs) for January were roughly as expected, with manufacturing stalled at 50 but services surprising to the upside at 54.1. For context, PMI readings above 50 denote expansion and below 50 reflect contraction of activity in the sector.

Decent US GDP Data – With investors bracing for economic fallout from the Wuhan virus over the coming months, fourth quarter GDP narrowly topped estimates, leaving full year 2019 GDP at a mild 2.3%. With the first estimate for 4Q19 GDP, the BLS estimated that the US economy grew 2.1% for the quarter, the same as in 3Q and just above consensus expectations of 2.0%. Today, analysts will note December income, spending, and inflation figures, and next week, January’s nonfarm payrolls and US PMIs will be in focus.

Summary and Price Action Rundown

Global risk assets tumbled overnight, reversing a two-day rally, as investor hopes for a limited impact of the Wuhan virus dim amid the continued outbreak, while earnings turn more mixed. S&P 500 futures indicate a 0.7% loss at the open, which would deepen the index’s 1.7% downside from its record high earlier this month. Over the prior two sessions, investors had been attempting to look past the economic impact of the viral outbreak emanating from central China but concerning reports of its spread are pushing volatility levels higher again (more below). Overnight, equities in Asia posted significant losses, with Taiwan’s benchmark equity index plunging 5.8% upon reopening from its holiday closure. Meanwhile, mainland Chinese markets remain closed for the Lunar New Year holiday, with the reopening delayed until Monday at the earliest. EU equities are also down more than 1%. The re-intensifying risk aversion is lending further support to Treasuries, with the 10-year yield sinking to new three-month lows at 1.56%, while the dollar is once again little changed. Crude oil is resuming its steep downtrend amid a darkening demand outlook, with Brent falling toward $58 per barrel.

Relapse into Risk Aversion as Wuhan Virus Outbreak Expands

Investor fears over the human and economic costs of the virus intensified overnight amid rising reported infections and fatalities despite significant efforts to slow the spread. With reported cases climbing to 7,783 and deaths increasing to 170, investors are continuing to monitor the expanding contagion while debating whether the coronavirus should be roughly analogous to SARS, which had a limited impact on growth and equity markets over the medium term. Official Chinese statements on the situation remain cautious, with Premier Li yesterday calling the outbreak “grim and complex” while Russia is taking steps today to close its massive land border with China in an attempt to halt transmission. On the market front, Asian assets are unsurprisingly suffering the heaviest losses, and mainland markets are set to post steep declines when (or if) they reopen next week. While the official renminbi is not trading, the offshore version briefly depreciated past the closely-watched 7 per dollar level and losses since January 20^th are nearing 2%. Meanwhile, a US-listed ETF of Chinese equities is trading 8.7% lower over that period.

 Corporate Earnings Turn More Mixed

Amid a busy calendar of fourth quarter (4Q19) corporate reports, Facebook’s disappointing results are dampening sentiment, but overall trends remain upbeat. Facebook shares are down 7.3% in pre-market trading after the social media giant issued downbeat 4Q results following yesterday’s closing bell. Share of Apple, however, rose 2.1% yesterday after 4Q earnings easily beat analyst expectations. Boeing lost $636 million in 2019, which was the company’s first annual loss in 20 years, due to the drag from the grounded 737 Max. Still, its shares rose 1.7% on optimism that the FAA could approve the revamped 737 by mid-year. McDonald’s rallied 1.9% and GE jumped 10.3% as both companies topped estimates. While AMD 4Q earnings narrowly beat expectations, shares of the semiconductor maker plunged 6.0% after the company offered weak 1Q20 revenue guidance. Of the 182 S&P 500 companies that have reported 4Q19 results, 73% have topped earnings expectations and 66% have beaten sales estimates. The rest of the week features Amazon, UPS, Coca-Cola, Caterpillar, ExxonMobil, UPS, and Honeywell.

          Additional Themes

Accommodative Fed Tone – The Federal Reserve held steady yesterday and Chair Powell gave a balanced assessment of the outlook at the press conference, but futures markets continue to price in more cuts over the coming year, which is not consistent with an upbeat economic outlook. The Fed also said that overnight repo operations will continue at least through April 2020 to ensure that there is an ample supply of reserves throughout the financial system. However, the interest on excess reserves rate (IOER) was raised by 5 basis points (bps) to 1.6%, aiming to keep the federal funds rate within the FOMC’s target range, as IOER works a guardrail for the funds rate.

Bank of England (BoE) Holds Rates – With futures reflecting 50% odds of a cut, the BoE retained its rate settings in Governor Carney’s last meeting in a 7-2 vote. The pound gained 0.5% versus the dollar but remains modestly below its strongest level in around a year. This comes after a recent string of mostly downbeat UK data, although the orderly Brexit which will occur at month-end avoided the worst case scenario of a “no deal” departure.

US GDP Data Due – Later this morning, analysts will note the preliminary reading of 4Q US GDP, which is forecast to slip to 2.0% from 2.1% the prior quarter, although some estimates, including the Atlanta Fed’s GDP tracker figure of 1.7%, are moderately lower.

  Summary and Price Action Rundown

Global risk assets are rebounding for a second straight session as investors hope for a limited impact of the Wuhan virus and focus on key US corporate earnings reports. S&P 500 futures point to a 0.4% gain at the open as the index continues to rebound from Monday’s steep loss of 1.6%, with the downside from its record high earlier this month at 1.6%. Investors are attempting to look past the probably short-lived economic impact of the viral outbreak emanating from central China though reports of its spread are keeping volatility relatively elevated (more below). Overnight, equities in Asia rebounded in tandem with the S&P 500 but gains were only modest, while mainland Chinese and other regional stock markets remain closed for the Lunar New Year holiday. In the EU, stocks are also moderately higher. Elevated uncertainty remains supportive of Treasuries, with the 10-year yield hovering just above three-month lows at 1.63%, while the dollar is once again little changed. Crude oil is retracing a portion of its steep downtrend, with Brent regaining $60 per barrel.

Market Sentiment Stabilizes Despite Spreading Wuhan Virus

Global market resilience is on display again today though investors continue to monitor increases of reported infections and fatalities and note the apparently lengthy incubation period, difficulty in detection, and high contagiousness. With reported cases rising to 6,057 and deaths increasing to 132, investors are continuing to monitor the expanding contagion, but investor concerns have eased as the most recent news, while troubling, suggests that the coronavirus should be roughly analogous to SARS, which had a limited impact on growth and equity markets over the medium term. Though price action is reflective of building investor optimism, official Chinese statements on the situation remain cautious, with Premier Li overnight calling the outbreak “grim and complex.” Market participants also note that Hong Kong officials are now blocking travel to and from the mainland. Over the weekend, analysts focused on reports detailing the highly contagious nature of the virus, which unlike SARS can spread during an asymptomatic gestation period that is estimated to last as long as ten days in some cases. Meanwhile, mainland markets, which closed starting last Friday for the Lunar New Year holiday, are set to remain shut beyond their scheduled reopening on Friday to the following Monday, at the earliest, although reports indicate that other business are preparing to stay closed for longer. Cases outside of China remain limited thus far.

 Corporate Earnings Continue to Support Equities

Amid a busy calendar of fourth quarter (4Q19) corporate reports, some disappointments have occurred this week, but they remain the exception to broadly upbeat results. Apple reported a strong set of figures after yesterday’s closing bell, centered around strong iPhone sales, sending its stock 2.1% higher in pre-market trading. Starbucks also topped estimates but the impact of the virus on its sales in China are clouding the outlook, with its shares 1.6% lower ahead of the market open. Yesterday, shares of 3M plunged 5.7% after reporting disappointing quarterly earnings and revenue and announcing 1,500 job cuts across the company. Drugmaker Pfizer posted a similar downside surprise, with its stock closing down 5.1% and Harley-Davidson fell 3.0% after the company reported a continuing decline in its US sales, citing demographics headwinds. In other corporate news, Boeing secured more than $12 billion in financing to help fund its efforts to fix the 737 Max. Today’s reports include McDonalds, Microsoft, Facebook, Boeing, and Tesla. Of the 122 S&P 500 companies that have reported 4Q19 results, 73% have topped earnings expectations and 66% have beaten sales estimates. The rest of the week features Amazon, UPS, Coca-Cola, Caterpillar, ExxonMobil, UPS, and Honeywell.

          Additional Themes

Fed Decision Due – Ahead of today’s meeting of Federal Reserve, futures markets are pricing in no chance of a rate cut and negligible odds of a hike, as Fed officials have continued to signal a pause in their monetary easing cycle that included three consecutive rate cuts and a restart of asset purchases to expand the balance sheet in the second half of last year. Expectations are for a continued dovish tone, and futures reflect the restart of rate cuts later this year. Recently, various current and former Fed officials have made public statements seeking to dispel the relatively widespread perception among market participants that the renewed asset purchases and other efforts to inject liquidity into short-term funding markets, are a stealthy form of quantitative easing (or QE) and are fueling the ongoing rise in US equity prices. For context, the timing of this new asset buying program neatly coincides with a steep 15% gain in the S&P 500.

Mixed US Economic Data – December’s core durable goods orders fell 0.9% on the month, while the market was expecting no change. Home prices were strong, however, as the S&P CoreLogic Case-Shiller National Home Price Index Nationally, home prices rose 3.5% annually in November, up from 3.2% in October, after seeing decreases for much of 2019.

Summary and Price Action Rundown

Global risk assets are steadying this morning after yesterday’s sharp selloff despite ongoing fears over the expanding outbreak of the SARS-like virus in China and overseas, as investors attempt to focus on incoming corporate earnings reports. S&P 500 futures indicate a 0.4% gain at the open as the index attempts to rebound from yesterday’s 1.6% decline, which put the loss from its record high earlier this month at 2.6%. Investors continue to ponder the ramifications of the viral outbreak emanating from central China as reports of its spread cloud global growth expectations and market sentiment generally (more below). Overnight, equities in Asia again posted losses of around 1-3%, though mainland Chinese and other regional stock markets remain closed for the Lunar New Year holiday. In the EU, however, stocks are slightly higher but trading with a cautious tone. Elevated safe haven demand alongside a cloudier global growth outlook are supporting Treasuries, with the 10-year yield hovering around 1.60%, a three-month low, while the dollar is flat. Crude oil remains in a steep downtrend, with Brent at its lowest level since October, below $59 per barrel, despite signals yesterday that OPEC is already discussing options for further output cuts to support prices.

Uncertainties Over the Spread of the Wuhan Virus Keep Markets on Edge

Investors are bracing for further increases of reported infections and fatalities given the apparently lengthy incubation period, difficulty in detection, and high contagiousness. With reported cases jumping to 4,474 and deaths increasing to 107, investors are nervously continuing to monitor the expanding contagion. Last evening, Chinese President Xi addressed the issue in cautious public comments and market participants noted that Hong Kong officials are now restricting travel to and from the mainland as efforts to stem the outbreak continue to expand. Over the weekend, analysts focused on reports detailing the highly contagious nature of the virus, which unlike SARS can spread during an asymptomatic gestation period that is estimated to last an average of ten days and as long as fourteen days in some cases. This concerning revelation, combined with reports that five million people departed the Wuhan area in the days before travel restrictions were imposed, has intensified already heightened uncertainty about the scope of the outbreak. Meanwhile, mainland markets, which closed starting last Friday for the Lunar New Year holiday, are set to remain shut beyond their scheduled reopening on Friday to the following Monday, at the earliest, although reports indicate that other business are preparing to stay closed for longer. Cases outside of China remain limited thus far, with isolated infections in the US and elsewhere.

 Corporate Earnings Season Enters Key Period

Analysts continue to expect this week’s calendar of fourth quarter (4Q19) corporate reports to provide support for equities, but the stakes are higher as disappointments will be magnified in the currently cautious market mood. Today features reports by Apple, 3M, Starbucks, Pfizer, LVHM, and Lockheed Martin, as the busiest week of earnings season picks up momentum today. Yesterday’s relatively short list of reporting companies kicked off this potentially pivotal week of corporate reports on a mixed note. Homebuilder DR Horton topped both earnings and sales estimates, sending its shares up 2.0% to dramatically outperform broader markets yesterday, even as December data on US new home sales surprised to the downside. Sprint, however, posted uneven results, undershooting on sales despite bettering earnings forecasts, and its shares sank 4.1% to a multi-year low. Whirlpool, which reported after the closing bell, also had a mixed 4Q, similarly missing on sales but exceeding earnings estimates, and its shares are down 1.3% in pre-market trading. Beyond today’s reports, the rest of the week features more major industry leaders, including Microsoft, Facebook, Amazon, McDonalds, Boeing, UPS, Coca-Cola, Caterpillar, ExxonMobil, Tesla, UPS, and Honeywell.

          Additional Themes

Economic Data Due – As investors continue to speculate over the potential global growth fallout from the coronavirus, US durable goods orders for December will be in focus today. In November, new orders unexpectedly fell 2.1% month-on-month (m/m) while the market was expecting a 1.5% rise. This also followed a weak October where orders only grew 0.2% m/m. US 4Q GDP is due on Thursday and Friday brings December income, spending and price data.

Investors Monitor US Political Developments – Although the impeachment process has had scant apparent impact on financial markets, given no clear erosion of Republican support for President Trump in the Senate, details from former National Security Council Director John Bolton’s upcoming book have added an incremental degree of intrigue to the proceedings. The strong assumption remains that the Senate will vote to keep President Trump in office. Meanwhile, analysts are also monitoring Senator Sanders’ surge in Iowa but, like impeachment, US political dynamics are likely to remain a backburner issue for investors until later this year.

Summary and Price Action Rundown

Global risk assets retreated sharply overnight as investor concerns over the expanding outbreak of the SARS-like virus in China and overseas deepened following a weekend of disquieting developments. S&P 500 futures point to a 1.4% lower open to start the week after Friday’s cautious decline of 0.9%, which would put the index about 2.5% below its record high from earlier this month. Investors continue to ponder the ramifications of the viral outbreak emanating from central China as reports of its spread cloud global growth expectations and market sentiment generally (more below). Overnight, equities in Asia posted losses of 1-3%, though mainland Chinese and other regional stock markets remain closed for the Lunar New Year holiday. In the EU, stocks are posting declines of similar magnitude. The rising risk aversion is driving demand for safe havens like Treasuries, with the 10-year yield down 6 basis points to 1.63%, a three-month low, while the dollar is edging higher. Crude oil is continuing its downtrend, with Brent at its lowest level since October, below $59 per barrel, and OPEC is already discussing options for further output cuts to support prices.

Continued Spread of Wuhan Virus Dispels Market Calm

As numbers of reported infections and fatalities continue to rise, alongside indications of severe contagiousness, investors are increasingly doubtful that tight travel controls around the epicenter of the virus in Wuhan and other official measures in China will succeed in stemming the spread. With reported cases rising to 2,794 and deaths increasing to 80, investors are nervously continuing to monitor the expanding contagion. Over the weekend, analysts focused on reports detailing the highly contagious nature of the virus, which unlike SARS can spread during an asymptomatic gestation period that is estimated to last an average of ten days and as long as fourteen days in some cases. This concerning revelation, combined with reports that five million people departed the Wuhan area in the days before travel restrictions were imposed, has intensified already heightened uncertainty about the scope of the outbreak. Outside of Asia, where the infections and equity losses have been concentrated, risk appetite had remained generally resilient until last Friday’s sobering reports that sixteen Chinese cities and roughly 46 million people were under varying degrees of travel restrictions. Meanwhile, mainland markets, which closed starting last Friday for the Lunar New Year holiday, will stay shut beyond their scheduled reopening on Friday. Cases outside of China remain limited thus far, with isolated infections in the US, Canada, France, Japan, Thailand, Singapore, South Korea, Taiwan, Hong Kong, Vietnam, Malaysia, and Macau.

 Corporate Earnings Season Enters Key Period

Analysts continue to expect this week’s calendar of fourth quarter (4Q19) corporate reports to provide support for equities, but the stakes are higher as disappointments will be magnified in the current climate of rising risk aversion. Last week’s array of earnings was broadly upbeat but featured some uneven results. On Friday, shares of chip giant Intel soared 8.1% after 4Q19 earnings and revenue handily beat consensus expectations. More importantly, Intel management forecast better-than-expected results for 1Q20. Meanwhile, shares of American Express rose 2.8% after reporting 4Q19 earnings which beat expectations with a “well-balanced mix” of fee, spending and lending revenues. However, results were not so rosy at competitor Discover Financial whose shares plummeted as much as 10% before recovering in late trading after the credit card company reported the total net charge-off rate in their loan book rose to 3.19%. Also, consumer lender Synchrony Financial fell 9.9% after missing revenue projections. Of the 86 S&P 500 companies that have reported 4Q19 results, 73% have topped earnings expectations and 66% have beaten sales estimates. The busiest segment of earnings season still lies ahead, with Apple, Microsoft, Facebook, Amazon, McDonalds, Boeing, UPS, Coca-Cola, Caterpillar, ExxonMobil, Starbucks, Lockheed Martin, Tesla, Whirlpool, UPS, Pfizer, 3M, and Honeywell among the key reports due this week.

          Additional Themes

Setback for Italian Populists Supports Local Bonds – Yesterday, a regional election in Emilia-Romagna proved to be a bulwark for the Democratic Party as a challenge from the right-wing populist Lega party fell short. With the fragile national ruling coalition of the Democratic Party and Five Star on increasingly shaky ground following the resignation of the Five Star leader earlier this month, analysts had speculated that a Lega win in traditionally left-leaning Emilia-Romagna could spark early elections. Italian bonds are posting a strong rally today, retracing much of their recent sell-off relative to German bunds.

Disappointing German Economic Data – The Ifo Institute’s survey of Germany’s business climate relapsed with a downside surprise for January, further clouding analysts’ nascent EU economic optimism that had already been dented by virus fears.