Predictably, given the weekend news flow, markets kicked off the week with a defensive posture, as China struggles to contain the Wuhan virus, which has claimed at least 80 lives.
CDC officials said the total number of US cases has risen to five. All of those diagnosed with the new coronavirus recently traveled from Wuhan, the epicenter of the outbreak, which is now effectively under quarantine.
The US cases are in Los Angeles, Phoenix, Chicago and Seattle. At least 100 possible cases are being investigated, CDC’s National Center for Immunization and Respiratory Diseases, Nancy Messonnier, said.
For equities, this is an excuse for a pullback, although barring something truly disastrous on the virus front, earnings will play a pivotal role in the new week given the tech behemoths are up to bat.
US equity futures dipped out of the gate, and the yen rose to a three-week high, with USDJPY down a fifth day, tied for the longest such streak since November.
10-year yields, which hit a YTD low on Friday after finally falling through the knee-jerk levels hit in and around Iran’s strikes against US interests in Iraq earlier this month, fell 6bps to 1.63%, the lowest since October 10.
Make no mistake, that’s notable. It was October 11 when Donald Trump and Liu He first announced that the US and China were set to work towards the “Phase One” trade deal which eventually came to fruition (if that’s how you want to describe it) last month.
Given that the “Phase One” deal was a big part of Q4’s reflation narrative, there’s a very real sense in which the long-end has now entirely priced that narrative out.
Holidays in Asia probably don’t help, as the less people there are around, the more illiquid the conditions. The Nikkei initially dove some 2% and the offshore yuan slid.
These moves have a tendency to reverse themselves overnight, but it’s worth documenting the early reaction coming off the weekend, as it underscores the extent to which markets are going to be uncomfortable up to and until there is evidence to support the contention that a pandemic isn’t in the cards.