Unscathed
Broader markets have escaped the carnage handed out by Mainland China yesterday where over 3,200 stocks finished limit-down and Shanghai/Dalian commodities opened into freefall. For US equities, levels manage to hold up amid selective reporting focus. S&P futures traded sideways after brushing 3,270. While Nasdaq was the relative outperformer gaining 1.29%.
Q4 earnings from Alphabet (GOOGL) have marginally weighed on the index, as reports from the trillion dollar market-cap tech giant saw revenue growth at its slowest in five years, and EPS miss analyst expectations. Though, on an absolute level, I’d posit there’s nothing too unnerving here with Search, Youtube and Cloud revenues still displaying double-digit growth against prior corresponding period. The share price was down around ~4% in extended trading.
Day 2
Look for immense focus to be placed on China’s second day of trading, and whether yesterday’s plunge gets buying support. It may be too early to tell, and of course, you tend not to want to catch a falling knife. If you do, sizing of your trade will be extremely vital in order to manage your risk. The spillover into regional markets was relatively contained and seems to be the trajectory markets are pointing to again at the open. ASX eyes a flat start to the tune of 3pts after sliding over 1% yesterday.
9am SGD/12pm AEDT: A50 open
9.15am SGD/12.15pm AEDT: Equity market open, China fixing announced
9.30am SGD/12.30pm AEDT: Onshore FX open
End of day finishes for Chinese equities.
RBA
Calendar risk up ahead brings focus to the RBA due out at 2.30pm AEDT. This should be a very interesting announcement given January’s jobs and inflation preamble, but should inevitably end up with no change to the cash target rate of 0.75% and little variation from the previous December’s monetary policy statement.
The greater focus will likely be placed on Lowe’s speech given Wednesday titled “The Year Ahead”. Though we do flag the potential for slight emphasis on recent Coronavirus impacts. As to what degree – it’s unclear.
AUDUSD edges towards six-month support of 0.667 (touched multiple times back in Sep/Oct), having severely underperformed G10 this year. Pricing in the curve has flattened with near-term expectations implying only a 23% chance the RBA cut in Feb. Though, beyond that, there’s well defined flatness out till 2020-end with March implying an 84% chance the RBA cut next month.
As I’m of the view the RBA will be forced to cut sooner rather than later given, consumption pullbacks associated with bushfires, labour slack, and notably, the Coronavirus; selling into AUDUSD strength with a holding time-frame of four to six months makes sense on a risk/reward basis.
