Intraday Market Thoughts

Earnings Absorb Market Fears for now

by Adam Button
Jan 28, 2020 12:19

Markets pare losses from Monday's global slide as traders divide their attention on US earnings and China's efforts to stem the spread of the Corona virus. The number of confirmed cases has now reached 106, up more than 100-fold since January 17. News of a planned 10% production hike by Apple has helped their suppliers and overall sentiment. USDJPY regains 109, US crude at 53.40s and US 10 yr yield at 1.62% from 1.57%. US durable goods orders and consumer confidence are due up next. The Premium Video below focuses on a 2-part trading strategy for Thursday's tight BoE decision as well as EURUSD.

China confirmed 4,515 cases of coronavirus on Wednesday, up from 2,744 a day earlier and just 41 on January 17. The pace of cases accelerated on the day but has been at just above 50% since the outset. That pace would surpass the SARS total by Friday and push it over 100,000 by next Wednesday.

What's especially worrisome is that it's not just Hubei province, the increase in other provinces is taking place at nearly the same pace. While it's certainly possible to believe that Hubei is too overwhelmed to get a correct count, that's less likely elsewhere.

Internationally, Thailand remains the place to watch for signs of an international outbreak with 8 cases there now confirmed. The baht was Asia's top performing currency last year but has fallen for four straight days as local stocks, especially those tourism-related take a fall.

The Fed meeting this week is suddenly more meaningful. US 2s/5s inverted on Monday and the spread between 3 month bills and 10-year notes is down to just 3 basis points. Judging by the Fed's recent playbook, there will be a dovish tilt in an effort to support stocks and calm volatility. All eyes will be on the surging debate about the Fed's repo injections.

Earnings Absorb Market Fears for now - Tweet Yield Curves Jan 28 2020 (Chart 2)

It's early but the Fed is right to worry. SARS cut 0.8-2.0 pp of GDP growth from China in 2003. The economy is completely paralyzed right now and many shutdowns through the week of Feb 10 have already been announced. China railway traffic and passenger flights were down 42% y/y on Saturday, the first day of lunar new year.

First , the Fed will get some final pieces of data on Tuesday with durable goods orders due out at 1330 GMT and the consumer confidence report at 1500 GMT. Apple earnings are due after the bell.

Act Exp Prev GMT
Core Durable Goods Orders (m/m)
0.4% -0.1% Jan 28 13:30
CB Consumer Confidence
128.2 126.5 Jan 28 15:00

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