AAPL Warning Sends Risk Tumbling

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Market Drivers February 18, 2020
AAPL warns sends risk lower
UK Employment
Nikkei -1.40% Dax -0.67%
UST 10Y 1.55%
Oil $51/bbl
Gold $1587/oz
BTCUSD $9764

Europe and Asia:
GBP UK Employment Claimant Count 5K vs.22.6K

North America:
No Data

Equities and risk FX were lower in Asian and European trade today with Aussie once again hitting decade long lows as Apple warned that they no longer can stand behind their Q1 guidance given the problems with the workforce due to the coronavirus.

Although China is supposed to be back to work from the Lunar New Year holiday most experts believe that the country is operating at only 60% capacity with much of the population restrained from movement due to the quarantine measures put in place by the government.

The Apple warning was hardly unexpected given the massive disruption to their supply chain but the markets still responded with surprise as Nasdaq fell more than 100 points from holiday close as investors started to consider the impact of the virus on business operations.

The business impact appears to be of much greater concern to the markets rather than the health emergency as the coronavirus infections still appear to be primarily a Wuhan phenomenon and cases ex-Hubai province and much more importantly ex-mainland China appears to be well contained. Epidemiologists still warn of the risk of global pandemic given the long incubation lag of the virus, but the longer the crisis persists without any signs of global spread the less markets fear the consequences.

Still, given the clear serious impact of the supply chain disruption to a bellwether like Apple, it’s difficult to see how bulls can maintain their sanguine attitude especially with indices at near record highs.

In FX land the only news of note was the better than expected print in UK employment which saw Claimant Count rise only 5.5K from 22K projected although the gains in Average Hourly Earning came in lower than expected at 2.9%. Still, the news was good enough to propel cable through the 1.3000 figure after several days of selling off. The post Brexit bump in the UK economy continues to resonate but the focus will soon turn to negotiations with EU so any upside in pound will be contained.

On the US front, the calendar is barren with the focus now strictly on investor reaction to Apple news dominating trade. If the market manages to shake off even this bad news the bulls would truly have the control in hand demonstrating that central bank liquidity trumps all. However, if the selloff steepens it may be the first sign of sensitivity to fundamental data and could be the start of a deeper correction.

Boris Schlossberg
Managing Director

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