Markets Rise on Stimulus Hopes

What's New

. Asian shares moved higher today, on course to post the second straight week of gains, boosted by hopes that governments around the globe, but especially in the continent, will make provisions to soften the impact from the coronavirus epidemic.

. Helped by the Asian sentiment, the S&P 500 futures gained 0.23% in the Asian session to hit record levels, recovering the 0.16% drop in US session yesterday.

. The positive vibe was not everywhere though: the Nikkei dropped in response to the news of first coronavirus death in Japan, and signs of a potential rise in domestic human-to-human infections in the country.

. Sentiment was also boosted after World Health Organization official said that the big jump in China's reported cases reflects a decision by authorities there to reclassify a backlog of suspected cases by using patients' chest images, and is not necessarily the "tip of an iceberg" of a wider epidemic.

. Still, while many investors hope the epidemic will gradually slow down in coming months, allowing companies and businesses to come back to normal operations, how long that process will take remains anybody's guess. On that note, Honda plans to restart operations at its vehicle plant in Wuhan, China on Feb. 21, a week later than initially planned.

. China's economy is forecast to grow at its slowest rate since the financial crisis in the current quarter, according to a Reuters poll of economists. The economists noted that the slowdown could be short-lived if the outbreak is contained.

. At the same time, the coronavirus epidemic is expected have a 0.2% impact on Japan's economic growth in 2020, due to its effect on exports. In this fiscal year, ending in March, Japan's GDP is forecast to grow by 0.8%, as last year's sales tax hike is forecast to have hampered growth in October-December. The survey also suggested that 70% of economists expect that the BOJ's next policy move would be to cut down on its massive stimulus program sometime in 2022 or later.

. At the moment, investors appear to be avoiding Asia and shift funds to the US. This means more demand for the US dollar in the currency exchange market, as observed from the 1.8% increase in the dollar index so far this month.

. On the other hand, the euro fell to a three-year low against the dollar, a nine-week low against the British pound and 4-1/2 year low against the Swiss franc. This came as a result of rising political uncertainties in Germany and mostly on worries about sluggish growth in the region.

. Sterling jumped, but so did UK bond yields, as investors bet on higher fiscal spending after British Prime Minister Boris Johnson forced the resignation of his finance minister.

. Oil prices were today, appearing all set for their first weekly gain in six weeks on the assumption that major producers will implement deeper output cuts to offset slowing demand from China caused by the virus. The spread between the first-month April Brent future and the May contract has narrowed to a discount of only 1 cent a barrel on Friday, down from a discount of 33 cents a week ago. The narrowing of this contango - a market situation that occurs when prompt prices are less than later-dated contracts - suggest that demand for oil is improving for Brent-related crude.

Up and Coming

. Euro area q4 GDP is due later today, with expectations of a slight 0.1% q/q growth (1% y/y), even though this may increase as Germany's GDP has come out better than expected at 0.3% y/y, but at 0% q/q.

. China's new loan growth is expected to be strong at 12.1%, even though may be affected to some extent from the coronavirus.

. In the US, core retail sales are expected to have risen 0.3% m/m, the same as overall retail sales. Industrial and manufacturing production on the other hand are forecast to have decreased on a m/m basis in January, but only mildly. Finally, University of Michigan consumer sentiment is expected to have slightly deteriorated in January, standing at 99.5 versus 99.8 in December.

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