Losing steam?
Trading was capricious overnight as nCoV infection levels continued to tick higher, and the virus found its way to the Middle East. Some soundbites suggest novel cases of the virus could peak by the end of next week, and so, a shift in market attention towards economic factors may be increasingly warranted.
Equities on a whole are marginally up/flattish walking into Asia, but not without jitters that took place before market open in the US. Traders saw S&P 500 futures dip into 3,270 and Gold reach for US$1,575. The ASX, helped by a relatively okay overnight session, is poised for a flat start at the open according to futures. Although, as is the case with major benchmarks, seems to be lacking confidence to sustain at current levels and technically looks to be turning back into weekly lows.
Market reactions in FX have been more selective with the USD broadly stronger against G10. AUDUSD and NZDUSD are highest beta to risk aversion moves by the market given China proximity. With a light calendar ahead and the developing situation of Coronavirus, expect AUDUSD to try for a meaningful close below November lows, despite catching some relief from yesterday’s positive CPI print.
Elsewhere, risk-off flows persist across Asia EM space with EM longs put on in Q4 2019 seeing slight reduction. While selling is biggest among CNH which teeters on the edge of 7 – PHP, THB, SGD also saw notable outflows too, driving the currencies down against the USD.
Confirmed Coronavirus cases tick up to 6,057.
Results
Tesla – FY2020 should see vehicle deliveries comfortably exceed 500k. Q4 Rev. beat $7.38bn vs $7.23bn pcp. Automotive gross margin weaker 22.5% vs 24.3% pcp. Cash at $6.3bn, up $930m. Production of Model Y to start in January 2020, ahead of schedule. Deliveries from Berlin- Brandenburg expected in 2021. Company says average selling price to be stable in near-term therefore expected volume and revenue growth to more closely correlate. Up 10% in extended trading.
Microsoft – Q4 Rev up 14% from $36.9bn with gains in personal computing ($13.2bn, +2%), intelligent cloud ($11.9bn, +27%) and productivity/processes ($11.8bn, +17%) segments. Up 0.55% in extended trading.
Facebook – Beat in advertising revenue ($20.7bn vs $16.6bn pcp) but fall in operating margin (42% vs 46% pcp). Monthly active people was 2.89bn, up 9% pcp. Down ~4% in extended trading.
Fed statement and conference recap
Not an overly eventful meeting as the Fed left its target range of 1.5-1.75% unchanged but raised the IOER rate by 5bps. Powell was arguably dovish in his delivery, sounding out his dissatisfaction with “inflation persistently running below 2%” and suggesting “uncertainty over trade is yet to go away”. As part of his concerns, the unknowns of Coronavirus were also mentioned. While none of it was really market-moving, US 10y yields have shaved ~3bps to trade at 1.59% and still some distance from August lows.
A highly topical consideration for markets, and clearly what most were focussing on, was the Fed’s open market operations (OMO). As we noted in our 2020 outlook, this remains a key driver of asset price inflation. Coincidentally then, Powell was seen to have side-stepped questions on the Fed’s impact of financial stability and squashing of volatility. However, to that end, the Fed “plan” to gradually reduce its T-Bill purchases and repo operations suggesting that the minimum target of excess reserves will likely be reached at some point in April.
What’s priced in?
