Summary and Price Action Rundown
Global risk assets are pausing their sharp four-day rebound as recent reports on the ongoing coronavirus outbreak rekindle a degree of investor caution ahead of the weekend. S&P 500 futures indicate a 0.4% decline at the open, which would bring the index slightly below yesterday’s new record high. After two weeks of cautious trading, risk appetite had come roaring back in recent days amid some encouraging news on slowing infection rates and potential treatment options, but volatility remains elevated. Overnight, equities in Asia were mixed, while EU stocks are modestly lower. Safe haven demand is helping support Treasuries this morning, with the 10-year yield at 1.61%, barely above multi-month lows after starting the year at 1.92%. The dollar is also rallying after the renminbi relapsed to the downside last night. Crude oil prices are again turning lower, with Brent crude sinking below $55 per barrel.
Confidence in Virus Containment Wavers Ahead of the Weekend
Headlines overnight are dampening this week’s prevailing investor optimism that the worst is over for the outbreak, and virology experts still see much uncertainty. To better understand the key risk factors of the coronavirus, please listen to the podcast we produced in conjunction with our friends at RenMac, featuring virologist Dr. Christopher Mores.
Click here for RenMac Off-Script: Coronavirus Thru Dr. Chris Mores’ Eyes:
Reports last evening that China’s key industrial city of Shenzhen may be unofficially locked down to prevent spread of the coronavirus rekindled investor concerns, which had eased this week amid a focus on the slower growth of reported cases and efforts to develop drug therapeutics. News that the Chinese doctor who initially alerted the public to the outbreak has died of the disease also darkened the mood. For context, the last two Fridays have featured some of the heaviest virus-related equity downside, as investors are wary of the potential for adverse developments over the weekend when markets are closed. Total reported infections have risen to 31,519 and fatalities to 638. The Shanghai Composite rallied for a fourth straight day, edging 0.3% higher to further reduce this week’s losses to 3.4%. Official and unofficial state support is being credited with helping the index rebound from Monday’s post-holiday plunge of nearly 8%. However, the renminbi turned lower versus the dollar overnight, re-approaching the pivotal 7 to the dollar level.
Corporate Earnings Remain Upbeat as Reporting Winds Down
As peak reporting season draws to a close, the overall tone of fourth quarter (4Q19) corporate results remains broadly supportive of equities. Yesterday, online mattress retailer Casper shares traded for the first time after pricing their IPO at $12 per share, closing the day up 11.7% from that initial IPO price. Twitter surged 15.1% after reporting 4Q19 revenue that came in above expectations and showed 152 million Monetizable Daily Active Users compared to 147.5 million expected. Shares had been under pressure since the company’s unexpected decision to eliminate political ads altogether, a more sweeping approach than other digital ad providers. Of the 316 S&P 500 companies that have reported 4Q19 results, 76% have topped earnings expectations and 66% have beaten sales estimates. Peak reporting is now unofficially over, and the degree of upside surprises and positive guidance rendered 4Q19 a very solid earnings season. In other corporate news, Attorney General Barr, in response to the UK decision to allow Chinese technology infrastructure firm Huawei to participate in its 5G network, said the US and its allies should consider investing in the companies to compete with Huawei on 5G. This resulted in shares of Finnish telecommunications company Nokia rising 4.5%, as it would be the main beneficiary of this investment, while the Trump administration maintains its intention to exclude Huawei from the US 5G network.
Additional Themes
US Jobs Data in Focus – This morning’s January nonfarm payroll number is forecast to be a robust 163k after last month’s slightly lighter-than-expected 145k, with Wall Street analysts generally expecting an upside surprise after strong jobs data earlier this week. Specifically, the ADP Employment number released on Wednesday estimated that private businesses in the US hired 291k workers in January, the most since May 2015, handily beating market expectations of 156k. Also, initial jobless claims fell by 15k to 202k last week, bettering market expectations of 215k and well below the previous week’s level of 217k. This is the lowest level of jobless claims since mid-April 2019. The dollar and Treasuries are rallying this morning, in contrast to their usual tranquility ahead of nonfarm payrolls, extending their year-to-date trends.
Looking Ahead – Next week features January’s US retail sales, industrial production, and consumer inflation data. UK and EU 4Q GDP numbers are also due. For context, January’s global data will be the last clean readings before virus-related distortions start to skew the numbers.