Monday, February 10, 2020

Capital Markets: "Quiet Start to the New Week in which Politics may Dominate" (plus China)

From Marc to Market:
Overview: The global capital markets have begun the new week on a cautious tone as investors seek to assess the latest news on the new coronavirus. Nearly all the markets in Asia fell but China. European bourses are lower as well, with the Dow Jones Stoxx 600 off about 0.3%. US shares are soft but little changed. Benchmark yields are slightly lower in Europe after Asia Pacific bond yields eased to catch-up the move in the US ahead of the weekend. The US 10-year yield is around 1.57%, The dollar has a heavier bias today, slipping against most of the major currencies, led by the Norwegian krone on the back of a surprisingly strong inflation report. Emerging market currencies are also mostly higher, with the Chinese yuan and Russian rouble vying for the top position, with both up almost 0.3%. After falling by 1.1% over the past two sessions, the JP Morgan Emerging Markets Currency Index is up by about 0.15%. Today late in the European morning. Gold is higher for the fourth consecutive sessions, and oil is in a 50-cent range on either side of the $50 a barrel mark.

Asia Pacific
Reports suggest a mixed re-opening of China's manufacturing companies. Some are extending the shutdown extension another week, and others are suggesting not re-starting until March. Manufacturing in China is labor-intensive, and there can be no work without masks. Two masks per day per worker are needed, and reports suggest shortages. Separately, reports indicate that officials have spent out half of the funds (CNY31.5 or ~$4.5 bln) that have already been allocated (CNY~72 bln) to combat the virus. The PBOC announced a new weekly facility to provide "re-lending" funds to major banks and several local banks that will be re-lend to businesses 100 bp below the one-year Loan Prime Rate of 3.15%.

China reported January CPI jumped to 5.4% from 4.5% in December. Economists had expected something a little shy of 5%. Food prices accelerated to 20.6% from 17.4%. Producer prices ended a six-month deflationary bout and rose 0.1% year-over-year. The news has little policy significance and does pick up the full impact of the coronavirus.

Reports indicate that China's oil demand has fallen by about 3.2 mln barrel per day, and as some industry re-opens, the decline could fall to around 2.5 mln bpd. Next month, demand is projected to be about 1.4 mln bpd less than in Q4 19. OPEC+ awaits Russia's decision whether it will go along with an extension of existing cuts until the end of the year and some additional cuts in H1 20. Meanwhile, Chinese commodity importers are declaring force majeure to turn back shipments, including reports of 35 liquid natural gas cargoes. Australia reportedly may be the most impacted....
....MUCH MORE
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