Soft open for Europe
Markets appear set to follow through on late Friday jitters in early Europe, with FTSE and DAX both eyeing a soft start according to futures trading in Asia. Again, despite what ostensibly seems to be a peak in Coronavirus fears – as evidenced by last week’s surge back to all-time highs and the return of shop workers to factory floors – risk appetite deliberates its next move in what I can only say is a delicate balancing act.
Aussie equities on watch
Aussie reporting season gets underway with eyeballs focussed on a couple of big names. Look no further then CBA, which expects to see continued pressure given squeezed NIM levels and extensive remediation costs. Healthcare darling CSL is largely pencilled in to deliver record earnings. A raft of others including Beach Energy, Woodside Petroleum and South32 are also due to report, but caution the impact of subdued commodity prices.
Taking stock of the nCoV
Containment efforts and quarantine measures are stepping up globally, but the Asia region clearly remains on edge. What’s contributed to the regain of confidence has been a market narrative which seems centered around the fact that the pace of new infections are slowing and the recoveries/death ratio is improving. Although, we’d argue the virus is more nuanced than just that. For one, confirmed cases of over 40k are still edging along. Mix that in with instances of transmission to those with no travel history to China, and the fact that only a small proportion of the workforce is likely returning, and suddenly, circumstances seem a bit more vulnerable than at first glance.
It’ll be worth monitoring at-risk currencies in USDSGD, USDPHP, USDKRW and USDTWD to gauge nCoV sentiment.
UK prelim GDP
A rebound here would be a welcome reinforcement defending the BoE’s recent decision to hold rates in January in a highly divisive 7-2 MPC vote. Forecasts are pencilled in for a 0.2% m/m print, well above prior month’s uninspiring -0.3%, but keeping the y/y figure subdued. While the UK economy was the preeminent focus for GBPUSD in the lead-up to the BoE’s decision, attention has now well and truly switched back to Brexit uncertainties, with traders chasing Brexit transition soundbites at every moment. Cable camps at multi-month lows and highlights more downside in the near-term towards under 1.28 levels.
RBNZ meeting
As just about every other G10 central bank has reported, the RBNZ kicks off its 2020 campaign last. Expectations are for rates to stay unchanged at 1%, though there could be a dovish tilt in Gov. Orr’s comments. Given this, we highlight long AUDNZD looks good value with relative yield differentials starting to bottom and point in favour of increased AUD portfolio flows.
New Hampshire Primary
The Iowa Caucus was a mess, nothing short of farcical in how long it took to get the results out and still didn’t come away with a clear winner. This week, markets look forward to the New Hampshire Primary on Wednesday, which should see Buttigieg and Sanders somewhat ahead again having been re-priced in betting markets. Because Iowa was a failure by administrators, there’s a little bit of momentum loss here. Therefore, I’d place more emphasis on Nevada being the key one to watch prior to Super Tuesday. Market sensitivity to continue dormant until deeper into the election.
US exceptionalism
While last week’s robust and critical NFPs (225k vs 163k) did little to quell a late Friday risk-off move across broader markets, the 2020 knight in shining armour of US exceptionalism when it comes to employment and growth remains evidently intact. Therefore, USD long bias could persist this week, especially with US Dollar Index having broken through multi-month highs and top tier data in retail sales likely to reaffirm the US consumer is alive and well.
What to look out for?
