Thursday, February 20, 2020

Stocks gain ahead of an expected stimulus package from China; yen tumbles after economic data suggests a possible recession

  • China
  • Gold
  • Yen
  • Stocks
  • European Central Bank
  • FOMC minutes


Market Recap: Stocks gain ahead of an expected stimulus package from China; yen tumbles after economic data suggests a possible recession

US stocks gained on Wednesday as investors expect additional stimulus from China to ease worries for a large dent in its economy amid the coronavirus outbreak. The S&P500 recovered all of its losses earlier in the week with energy sector (+1.32%) and technology sector (+1.09%) stocks leading gains in the index. The Nasdaq extended into a three-day win streak, maintaining its position as one of the best performers among major indices year-to-date (+7.97% or +724.99 points YTD), while the DJIA inched closer to last Friday’s levels.

In company news, Garmin shares jumped 6.74% after beating quarterly estimates (Q4 EPS: US$1.29 (A) vs US$1.02 (E); Q4 Revenue: US$1.10bn (A) vs US$1.00bn (E)) and adjusted its forecasts for 2020's earnings and revenue above analysts' estimates.

Nvidia's 6.11% gain after a Bernstein analyst upgraded his rating for the company to outperform also helped boost both the Nasdaq and S&P500 index higher on the day. Apple's stock advanced 1.45% to 323.62 per share, recovering most of its losses on Tuesday after it announced that it would not be able to meet its revenue guidance for its quarter thanks to supply chain disruptions.

Indexes Change (%) Net Change Closing Price
Dow Jones +0.40% +115.84 29,348.03
S&P500 +0.47% +15.86 3,386.15
Nasdaq +0.87% +84.44 9,817.18
*Source: Bloomberg

The yen tumbled 1.37% on Wednesday after machine orders in December dropped more sharply than expected, declining 12.5% instead of economists' consensus for an 8.9% drop. The worse-than-expected machine orders dataset coupled with data signalling a large contraction in its economy in Q4 2019 encouraged a selloff in the yen on the speculation that Japan is headed for a recession.

The FOMC's minutes were largely in line with expectations, reiterating the Fed's stance that the current monetary policy is appropriate and that Treasury purchases could be slowed after April. Financial markets' expectations of a rate cut by the end of 2020 were little moved, with implied probabilities for a rate cut by July falling slightly from 82.5% to 73.5%.


Gold gained despite China's likely additional stimulus today, maintaining its bullish trend to trade near its highest level since 2013. Speculation that the financial markets is overly-optimistic on the economic impact of the coronavirus outbreak is likely to continue to drive gold prices. The precious metal looks set to end the week higher, already up 1.53% since Friday. US Treasuries fell slightly on Wednesday, with benchmark 10-year yields advancing 0.5bps to 1.57%.

Safe Haven Assets Change (%) Net Change Closing Price
Gold +0.63% +10.09 1,611.70
Silver +1.43% +0.26 18.16
JPY -1.37% -1.50 111.37
*Source: Bloomberg
US Treasury yields Change (bps) Yield (%)
2-Year +1.0 1.42%
10-Year +0.5 1.57%
30-Year +0.3 2.01%
*Source: Bloomberg

Oil prices spiked amid the US sanctions on Rosneft, Russia's largest producer, and supply worries thanks to the conflict in Libya. Libya's truce talks were suspended after its port was shelled by forces loyal to milittary commander Khalifa Hafter, prompting more concern that tensions in the country is unlikely to ease anytime soon. OPEC has sent out invitations to its members and allies for a meeting on March 5th and 6th, removing any expectations from the market for an emergency meeting by the bloc to lift depressed oil prices as a result of a drop in demand in China amid the coronavirus outbreak.

Oil Futures Change (%) Net Change Closing Price
Brent Crude +2.37% +1.37 59.12
WTI Crude +2.38% +1.24 53.29
*Source: Bloomberg

Stocks in Asia look set to track US gains as investors wait on the PBoC's additional stimulus. The PBoC is set to announce its one-year and five-year Loan Prime Rates (LPR) at 9.30am (GMT +8) today. It is widely expected that the central bank will cut rates, with economists forecasting a 10bps cut to its one-year LPR to 4.05% and a 5bps cut to the five-year LPR to 4.75%. The Nikkei and KOSPI were both in the green ahead of the PBoC’s decision on Thursday morning.

Asia Change (%) Net Change Last Price As of (GMT +8)
Nikkei Index +1.51% +353.07 23,753.77 8:46:55 AM
KOSPI Index +0.14% +3.03 2,213.37 9:06:50 AM
ASX200 Index +0.49% +35.04 7,179.60 9:06:36 AM
*Source: Bloomberg

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

  • PBoC decision on 1Y/5Y LPR (9.30am)
  • Germany March Consumer Confidence Survey (Gfk) (3pm)
  • ECB Monetary Policy Meeting Minutes (8.30pm)
  • US Feb 15 Initial Jobless Claims (9.30pm)
  • US Feb Philadelphia Manufacturing Survey (9.30pm)