Market Drivers February 10, 2020
Cable remains weak
Nikkei -0.60% Dax -0.11%
UST 10Y 1.59%
Europe and Asia:
Despite the rise in coronavirus deaths that have now put the toll above the SARS virus, markets were steady at the start of the week, shrugging off an initial flurry lower on the open to trade flat by European open.
There was little fresh news on a slow and listless Monday trade as the coronavirus figures continued to climb higher with cases now exceeding 40K and deaths rising above 900. Still, markets generally ignored the news with bulls taking solace in the fact that recovery rates – at least according to official statistics improved markedly.
Although few analysts believe the official infection data coming out of China with some even suggesting that the death rates could be as high as 50K based upon the indirect evidence from crematorium activity, investors continue to view the virus threat as strictly China problem. One key factor bolstering the bullish sentiment is the fact that deaths and even infection rates outside of China have been minuscule.
There is no doubt that coronavirus is highly contagious as evidenced by the growing number of cases on the Japanese cruise ship, but so far it has failed to spread outside the Mainland borders. If this trend remains in place for the next few weeks investors are likely to breathe a sigh of relief that the risk of the global pandemic has been averted.
Even if the global infection rate remains low, the damage to China has been immense with global supply chains deeply disrupted, yet here too investors are taking a Panglossian view that Chinese authorities will be able to contain the virus and send half the countries population that is now under quarantine back to work by the start of March. If that’s the case the bullish case may win out as markets will assume that CCP authorities will flood the market with a massive stimulus to restart the economy and make up for lost production.
For now, however, those two factors – global infection rates and resumption of Chinese economic activity are unknown and trade in both equities and FX is likely to be cautious as traders watch the coronavirus story with focus. Despite the flood of risk-off news equities remain virtually at all-time highs, but if the news does not improve soon investors may lose patience and the buy the dip mentality could finally give way.