Australian shares are set to recoup some of Tuesday’s losses at the open as China expands its effort to contain the coronavirus. Equities in both Europe and on Wall Street are rebounding.
ASX futures were up 42 points or 0.5% to 6981 near 6.30am AEDT. The local currency slipped 0.1%.
“China’s actions [to contain the crisis] seem to have satisfied investors for now,” LPL Research said in a note. “While we don’t want to minimise human losses, history tells us the economic and market impact of a catalyst like this could be limited.”
Near 2.30pm in New York, the S&P 500 was 1.1% higher; the Dow advanced 0.9% and the Nasdaq was up 1.5%. Apple, set to report its latest results after the closing bell, was 2.7% higher.
Shares earlier closed higher across Europe, paced by a rebound in luxury stocks.
The yield on the US 10-year note rose 4 basis points to 1.65%.
Copper fell to a near four-month low. Benchmark copper on the London Metal Exchange (LME) ended 0.7% lower at $US5703 a tonne, recording its 10th straight session of losses. The metal touched its lowest since October 10 at $US5690.50.
China has agreed that the World Health Organisation (WHO) can send international experts there “as soon as possible” to increase understanding of a new coronavirus and guide the global response to the outbreak, the UN agency said.
In a statement issued after a two-day visit by WHO director-general Tedros Adhanom Ghebreyesus, who met Chinese President Xi Jinping as well as the health and foreign ministers, it said that a better understanding of the virus’ ability to spread from person-to-person was urgently needed to advise other countries.
Fundstrat Global reaffirmed its optimistic outlook for US equities, though it said investors should expect more turbulence too.
“Our outlook remains unchanged and expect equity markets to churn in a choppy trading range well into, and possibly through, Q2 before a suitably oversold condition can develop to support another multi-month upleg in the current 4-year bull cycle. Our longer-term cycle work continues to point to further upside for equities in 2020 with the current pause/pullback viewed as a normal and healthy consolidation after an impressive surge in Q4. Tactically, cyclicals continue to consolidate above support following their Q4 rebounds while lower volatility stocks that pulled back through Q4 are bottoming and/or reaccelerating at long-term uptrend support.”
Local: Leading index December, Consumer price index fourth quarter
RBC Capital Markets: The “Q4 inflation report is the last key input to the RBA decision next week. Our economists are in line with consensus, expecting headline inflation steady at 1.7%y/y. A near 5% rise in fuel adds ~0.15ppt with further drought-driven increases in food prices and currency-induced lift in clothing and footwear likely. This is offset by a more muted increase in the housing component amid flat rents and a modest increase in utilities.
“We expect the key core measures to have stayed subdued in the quarter with stable but still far too low annual inflation at 1.4%y/y. Outcomes in line with consensus would both be below the RBA’s end 2019 forecasts. But after strong Dec employment data, the RBA call is still finely balanced and any upside surprise to inflation should benefit AUD more as a result.”
Overseas data: US trade balance, wholesale inventories, retail inventories and pending home sales all for December; Fed policy decision and post-decision news conference by Jerome Powell
ASX futures up 42 points or 0.5% to 6981 near 6.30am AEDT
- AUD -0.1% to 67.52 US cents (Overnight low 67.37)
- On Wall St near 2.30pm: Dow +0.9% S&P 500 +1.1% Nasdaq +1.5%
- In New York: BHP +0.7% Rio +0.7% Atlassian +3.3%
- In Europe, Stoxx 50 +1.1%, FTSE +0.9% CAC +1.1% DAX +0.9%
- Spot gold -0.8% to $US1570.01/oz at 12.46pm New York
- Brent crude +0.8% to $US59.77 a barrel
- US oil +0.6% to $US53.47 a barrel
- LME aluminium -0.7% to $US1752 a tonne
- LME copper -0.7% to $US5703 a tonne
- 2-year yield: US 1.46% Australia 0.66%
- 5-year yield: US 1.47% Australia 0.67%
- 10-year yield: US 1.65% Australia 0.95% Germany -0.34%
- 10-year US/Australia yield gap: 70 basis points
Note: The Dalian Commodity Exchange, where one of China’s most liquid derivatives — iron ore futures — is traded, will now open on Monday, February 3, instead of Friday, January 31.
From today’s Financial Review
Beware an emotional reaction to virus fear: It’s no surprise investors have taken profits, given the spread of coronavirus and Australia’s reliance on China. But fear can cloud the market’s judgment.
Life in a ghost town as virus paranoia sets in: With Shanghai shut down for another two weeks, the only signs of life on the streets are dog walkers and bored-looking security guards, writes Michael Smith.
Stockbrokers blast ‘flawed’ LIC fee debate: Politicians, regulators and media commentators have waged a campaign of misinformation on listed investment fund fees, says the stockbrokers’ top lobbyist.
Brace for decade of ‘living dangerously’, warns Kevin Rudd: Peace between Donald Trump and Xi Jinping over trade won’t stop an increasingly “adversarial” clash between the superpowers as they test each other’s limits on technology, markets and security, says the former Australian PM.
Bank of America on the FOMC decision: “As widely expected, we look for the Fed to keep the fed funds target range unchanged at 1.50-1.75% at the conclusion of the 28-29 January meeting. There will, however, likely be a technical adjustment to its administered rates.”
BofA also said it sees a continuation for now of the short squeeze on the US dollar, which has been “on a tear” to start the year.
“Wednesday’s FOMC decision is unlikely to impact USD idiosyncratically, assuming the Fed remains consistent in its message that (1) it is firmly on-hold with monetary policy remaining “appropriate,” (2) that it continues to act in the interests of sustaining the recovery and (3) that its inflation target remains “symmetric” and allows for moderate overshooting. A dovish risk for USD is if the Fed places a renewed emphasis on downside risks emanating from abroad, but this is not our expectation.”
Britain snubs US, Australia with green light for Huawei: Britain gives the Chinese telco giant limited access to its 5G network and says Five Eyes intelligence sharing won’t be affected.
Banks and luxury goods led a recovery in European shares.
Upbeat earnings pushed lender Swedbank to the top of the pan-region STOXX 600 index, while Virgin Money UK rallied on reporting higher loan book growth.
Marking its best day in almost a month was Italy’s lender-heavy index, jumping 2.6% to lead regional peers as its banks index rallied 2.5%.
Luxury goods makers LVMH Burberry Group, Kering and Moncler, which derive a chunk of their demand from China, rose after sliding more than 3% on Monday.
The STOXX 600 ended up 0.8%. Along with most other major country indices, STOXX 600 had lost more than 2% on Monday which had wiped out around 200 billion euros of market capitalisation.
Joko Widodo to visit Australia in February: The Indonesian President is expected to address the two houses of Parliament when he visits Canberra next month.
Why Sandiaga Uno will keep cashing in his Saratoga wealth: The private equity whizz-kid turned politician now describes himself as a social entrepreneur but is still talking politics.
Bonds boom as China doom crushes bulls: Plunging yields loom as a big question mark over global recovery hopes as anxiety about China’s outbreak hobbles the bullishness that has reigned in 2020.
The bond bull market may be running out of time: The relative tranquillity of the past 35 years could be shattered by a series of emerging global threats.
Capital Economics on gold: “unless the coronavirus outbreak becomes a big-enough threat to alter the Fed’s course, which for the time being we are assuming it won’t, we doubt that the price of gold will continue to rise”.
CE also said: “For the time being, our central scenario remains that the price of gold will ease back over the coming months. Our end-2020 forecast is $US1400 per ounce, which compares with roughly $US1570 currently.”
TD Securities on base metals: “CTA flow continues to have an outsized effect in the industrial metals space, particularly with SHFE closed for Lunar New Year celebrations.
“Amid fears associated with a growth-destructive pandemic, algorithmic trend followers have added momentum to the sharp correction in the complex, as price action triggered selling programs across copper, zinc, nickel and lead. In fact, we estimate a massive positioning change could take place in the red metal — should prices close south of $US5705/t, we would expect a nearly -60% change in positioning in response to a strengthening downtrend.
“Notwithstanding, we contend that the fear factor is worse than reality — these fears should be balanced against the improving tailwinds of growth globally, along with the potential for further credit and fiscal measures to compensate for any economic damage and the improvement in disease recognition techniques and medicine in the last 17 years since SARS.
“Instead of a reversal in global reflation, we are likely seeing a positioning squeeze as global markets front-ran a potential improvement in growth, which left the bulls vulnerable to a disappointment. In turn, we argue that any further weakness represents a buying opportunity for those who are willing to look past the fear factor towards a continued recovery in global growth.”
Aussie stocks driven by “need and fear”: CLSA strategist Adrian Mowat says emerging market stocks offer better earnings growth and lower multiples than developed markets like the US and Australia.
Australian shares tumbled to their biggest loss of 2020 on Tuesday as concerns about the fallout on global growth from China’s coronavirus outbreak sparked a rout of world stockmarkets.
The S&P/ASX 200 Index fell 96 points, or 1.4 per cent, to 6994.5 points, making it the biggest one-day fall for the new year, while a flight to safety pushed the Australian 10-year bond yield below 1 per cent for the first time since October.