Intraday Market Thoughts ArchivesDisplaying results for week of Jan 19, 2020
The coronavirus is increasingly drawing the attention of the financial markets and escalating headlines about infections are putting traders on edge. Chinese officials halted travel from Wuhan, locking down the city of 11 million people as they confront halting the spread of a new SARS-like virus that's already killed 17 and infected nearly 600 people. More below on how this compares to SARS in 2003. Aussie is the highest gainer on reduced expectations for an RBA rate cut next month after an unexpected decline in the jobless rate. Global indices are down across the board, oil extends its tumble, CAD fell sharply after the BoC issued a dovish hin, while JPY and bonds resume their ascent. The Premium trades in short oil and long cable are deepening in the green, while the EUR trades await the ECB's 500th ECB policy decision, due later today.
Corona Virus Now vs SARS in 2003The outbreak of the Corona virus is especially scrutinized as it coincides with the upcoming Chinese Lunar New Year, which involves the largest human migration in the globe as train and air travel ascends in and out of China. Beijing is one of the most traffic-jammed cities in the world, but it's said that in 2003 during the height of the SARS outbreak, the only thing drivers had to worry about was getting a ticket. The city was on lockdown and virtually every face was covered by a mask.
The economic impacts were real, estimates vary but the curb to GDP growth was somewhere between 0.8 percentage points and 2.0 points. It also weighed on other countries, particularly in east Asia. SARS eventually infected more than 5000 people in China and the path of coronavirus appears to be similar. In that case, the WHO issued the first alert in mid-March and didn't declare that the world was nearly SARS-free until the end of June.
Ultimately, this virus will pass and growth will resume but we're at the point in the cycle where the numbers and the fears will continue to rise. One area that was hard hit in 2003 was commodities, which struggled during the height of the fears. However this will ultimately be a buying opportunity for risk assets, but not yet.
Here we go again; central bank meetings and more earnings from the US. US housing starts jumped 16% on Friday in a positive sign for the US consumer and a sign that low interest rates might be working too well. Trading was light on Monday largely because of the MLK holiday in the US. Gold leads all currencies, holding partly to gains after US inde futures bounce from Asia lows. The CFTC positioning data showed US dollar longs cutting back again. As speculation mounts ahead of this week's BoE and ECB monetary policy decisions, Ashraf posted the chart below, which he says is foretelling a major move in 2020.
The jump in US housing starts to 1608K from 1380K was the biggest one-month gain since October 2016. One caveat to the rise was unseasonably warm weather, which may have artificially increased activity but in the bigger picture, starts have been strong since August.
From a global perspective, US housing is still relatively cheap in part due to the overhang from the crisis, but the scars are beginning to fade and low rates remain steroids for home buying. In addition, home builders have been scaling down to lower-priced homes to capture high demand in that segment. That trend could help to boost activity in 2020 while higher housing prices could spark a wealth effect.
The jump is a reminder that US risks are more two-sided than they were in 2020. If manufacturing and trade-related sectors get a bump from the phase-one trade deal or if business investment picks up, the Fed could be facing questions about inflation.
CFTC Commitments of TradersSpeculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.
EUR -48K vs -61K prior GBP +31K vs +17K prior JPY -31K vs -12K prior CHF flat vs -4K prior CAD +33K vs +26K prior AUD -20K vs -27K prior NZD flat vs -1K prior
The overall the US remains firmly in a net-long position but it's at the weakest since June 2018.