Monday, February 17, 2020

Germany’s GDP confirms weak euro outlook; US consumer confidence rises despite coronavirus outbreak

Tags
  • Dollar
  • Gold
  • Yen
  • Euro
  • Stocks
  • US Retail Sales
  • Nasdaq

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Market Recap: Germany’s GDP confirms weak euro outlook; US consumer confidence rises despite coronavirus outbreak

US markets closed mostly higher on Friday, after stocks were lifted by a CNBC report that said that the US Trump administration is considering ways to incentivise Americans to invest in the stock market. One of the considerations of the White House was to use tax incentives for households’ earnings up to USS200,000 to invest US$10,000 of that income in the stock market on a tax-free basis. In company news, Nvidia soared 7.02% to US$289.79 per share after posting better-than-expected quarterly earnings, helping to lift the S&P500 and Nasdaq. The DJIA inched slightly lower while the S&P500 and Nasdaq gained on Friday.

Indexes Change (%) Net Change Closing Price
Dow Jones -0.09% -25.23 29,398.08
S&P500 +0.18% +6.22 3,380.16
Nasdaq +0.20% +19.21 9,731.18
*Source: Bloomberg

Most major indices gained over the week as fears of the negative impact of the coronavirus outbreak started to fade. Investors are likely viewing the outbreak as a short-term impact to the global economy and are positioning their portfolios for longer-term strategies. While equity markets advance, safe haven assets also gained over the week. Gold gained 0.83% and the Dollar Index added 0.44 points, or 0.45% over the week. The yen strengthened against both the dollar (+0.03%) and euro (+0.99%) over the week as well.

Indexes Weekly Change (%) Net Change Closing Price
Dow Jones +1.02% +295.57 29,398.08
S&P500 +1.58% +52.45 3,380.16
Nasdaq +2.21% +210.66 9,731.18
FTSE100 -0.77% -57.57 7,409.13
Euro Stoxx +1.12% +42.48 3,840.97
Nikkei -0.59% -140.39 23,687.59
KOSPI +1.43% +31.64 2,243.59
ASX200 +1.53% +107.63 7,130.21
Hang Seng +1.50% +411.33 27,815.60
Straits Times +1.21% +38.55 3,220.03
*Source: Bloomberg

Euro fell to a nearly a three-year low of 1.0827 on Friday after Germany posted weaker-than-expected GDP. Preliminary estimates show Germany's economy stagnating in the final quarter of 2019 while economists forecasted a 0.1% growth QoQ. The report came after industrial production in the German economy sharply declining in December, confirming worries that the Germany economy is still slowing down despite improving business sentiment. The slowdown in Germany likely spilled over into the Eurozone's aggregate Q4 GDP, which expanded in line with forecasts of 0.1% QoQ but fell short of economists expected 1.0% advance YoY to only grow at a rate of 0.9% YoY.

In the US, climbing consumer sentiment in February helped lift the greenback on Friday. Earlier on Friday, headline retail sales gained 0.3% in January vs 0.2% in December largely due to the increase in building materials. But details of the report point to lower consumer spending, as the contribution from building materials were likely a result of the milder-than-usual weather in January, allowing the construction industry to perform better-than-expected. Core retail sales (excluding auto and gas) beat economists’ forecasts to rise 0.4% MoM in January likely thanks to reduced retail gas prices in January. Industrial production fell more-than-expected, contracting 0.3% MoM. The University of Michigan's consumer sentiment survey showed consumer confidence soaring despite the coronavirus outbreak in China, climbing to 100.9 in February from 99.8 in January and much higher than economists' forecasts of 99.5.

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Safe haven assets advanced on Friday as investors likely again shifted to lower risk assets to hedge against risk of the coronavirus outbreak escalating over the weekend. Gold, yen and US Treasuries all advanced on Friday. Benchmark 10-year yields were 3.3bps lower to end the week at 1.58%.

Safe Haven Assets Change (%) Net Change Closing Price
Gold +0.51% +8.06 1,584.06
Silver +0.53% +0.09 17.62
JPY +0.04% +0.04 109.78
*Source: Bloomberg
US Treasury yields Change (bps) Yield (%)
2-Year -1.6 1.43%
10-Year -3.3 1.58%
30-Year -3.2 2.04%
*Source: Bloomberg

Oil futures advanced on Friday to extend its winning streak. Brent and WTI crude oil futures both gained more than 1% on Friday as worries of a large negative economic impact eased over the week. The outlook for crude oil prices has improved as China, Hong Kong and Singapore pledged to step up its measures to relieve the region's economic impact from the virus over the week.

Oil Futures Change (%) Net Change Closing Price
Brent Crude +1.74% +0.98 57.32
WTI Crude +1.23% +0.63 52.05
*Source: Bloomberg

Asian stocks started the Monday's trading session in the red and looks set for losses after Japan's economy declined sharply in the final quarter of 2019 and as Singapore downgrades its forecast for 2020's economic growth amid the coronavirus outbreak. Japan's Q4 JPY contracted at an annualised pace of 6.3% QoQ, much lower than the expected 3.8% contraction that economists forecasted. The contraction was likely due to the hike in sales tax and the effects of typhoon Hagibis in October. The Nikkei and KOSPI started Monday's trading session 0.84% and 0.02% lower and continued to retreat in the early hour of the day.

Asia Change (%) Net Change Last Price As of (GMT +8)
Nikkei Index -1.14% -269.32 23,418.27 8:52:20 AM
KOSPI Index -0.28% -6.28 2,237.31 9:12:20 AM
ASX200 Index -0.32% -22.60 7,107.60 9:12:06 AM
Hang Seng Futures -0.59% -164.00 27,589.00 2:59:55 AM
*Source: Bloomberg

Expect a heavy macro week ahead, with the RBA, ECB and FOMC releasing their respective monetary policy meeting minutes later this week.

Economic releases for the day ahead include (all timings in GMT +8):

  • Japan Dec Industrial Production (12.30pm)