Friday, February 21, 2020

Global equities slide after South Korea’s confirmed cases of Covid-19 doubles

Tags
  • China
  • Dollar
  • Yen
  • European Central Bank

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Market Recap: Global equities slide after South Korea’s confirmed cases of Covid-19 doubles

Tech stocks led a slide in US equities on Thursday, after an unexpected surge in new Covid-19 cases in China and South Korea. China's Hubei province asked firms in the province to not resume work before March 11. South Korea reported 53 new cases on Thursday, doubling its count to 104. Beijing reported 36 cases in Fuxing Hospital on Thursday. The spike in cases in South Korea and multiple cases in Beijing likely prompted investors to take profits and shift to lower risk assets.

Indexes Change (%) Net Change Closing Price
Dow Jones -0.44% -128.05 29,219.98
S&P500 -0.38% -12.92 3,373.23
Nasdaq -0.67% -66.22 9,750.97
*Source: Bloomberg

The greenback jumped on the news of a jump in new Covid-19 cases and strong economic data in the US. Jobless claims in the US were mostly in line with economists' forecasts. Initial jobless claims rose by 4,000 to 210,000 for the week ended February 14th and continuing claims rose slightly more than the expected 1,717,000 to 1,726,000 for the week ended February 8th. the leading index in the US for January also rose 0.8%, besting economists' expectations of a 0.4% growth.

The yen was the worst performing currencies against the dollar after the Australian and New Zealand dollar (two currencies that are highly correlated to expectations for the Chinese economy) on Wednesday, pushing the Dollar Yen to a nine-month high. Correlation between other safe haven assets and the yen has dropped, signalling that the yen is likely detached from the perception of a safe haven asset and investors are more likely dropping the yen in favour of the dollar as Japan's economy may be headed towards a recession and as the US economy has been relatively much less affected than Japan's from the effects of the coronavirus outbreak.

The ECB's meeting minutes did little to surprise investors on Thursday. The minutes only confirmed the ECB's cautiously optimistic tone, as downside risks at the time had been lifted thanks to the phase one trade deal between the US and China earlier in the year. Most of the ECB's growth outlook has likely changed however, with the coronavirus outbreak unexpectedly weighing on the global economy. Overnight Index Swaps were little changed, with financial markets already pricing in a higher likelihood of a rate cut by the end of 2020 as compared to right after the ECB's monetary policy meeting before the meeting minutes were released. The euro was little moved by the meeting minutes and was instead driven mostly by the dollar's strength on Thursday.

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Safe haven assets surged on Thursday amid revival of concern for an acceleration in the spread of the Covid-19. Gold extended into a three-day gaining streak, rising to 1619.56 and US Treasuries advanced across the board, with benchmark 10-year yields gaining 5.1bps to 1.52%.

Safe Haven Assets Change (%) Net Change Closing Price
Gold +0.49% +7.86 1,619.56
Silver -0.36% -0.07 18.23
JPY -0.66% -0.73 112.10
*Source: Bloomberg
US Treasury yields Change (bps) Yield (%)
2-Year -3.3 1.39%
10-Year -5.1 1.52%
30-Year -5.3 1.96%
*Source: Bloomberg

Oil inched higher despite renewed epidemic worries. A surge in crude exports and reduced inventories in the US helped extend crude oil’s recovery, pushing Brent and WTI crude futures US$0.19 and US$0.73 per barrel higher on Thursday.

Oil Futures Change (%) Net Change Closing Price
Brent Crude +0.32% +0.19 59.31
WTI Crude +0.73% +0.39 53.88
*Source: Bloomberg

In Asia, stocks may be set for losses, with February’s PMI in Japan and Australia signalling a contraction across industries before market open on Friday (CBA Australia Composite PMI: 48.3; Jibun Bank Japan Composite PMI: 47.0). The KOSPI index fell sharply on Thursday amid a surge in Covid-19 cases prompting the South Korean government to urge citizens in Daegu city (where 69 cases of Covid-19 has been reported as of February 21st 8.23am GMT +8) to stay home. On Friday morning, South Korea confirmed an additional 52 cases of the virus, putting its overall confirmed cases at 156.

Asia Change (%) Net Change Last Price As of (GMT +8)
Nikkei Index +0.03% +7.62 23,486.77 9:14:20 AM
KOSPI Index -0.96% -21.11 2,174.39 9:34:20 AM
ASX200 Index -0.20% -14.49 7,148.00 9:34:06 AM
*Source: Bloomberg

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

  • Germany Feb Manufacturing/Services PMI (Markit) (4.30pm)
  • Eurozone Feb Manufacturing/Services PMI (Markit) (4.30pm)
  • UK Feb Manufacturing/Services PMI (Markit) (5.30pm)
  • US Feb Manufacturing/Services PMI (Markit) (10.45pm)