Some folks didn’t fancy being long into a weekend that will feature more headlines documenting new cases of the coronavirus and, in all likelihood, more deaths.
Looming large on the horizon is the reopening of mainland markets in China, where shares are almost sure to plunge, especially after Friday’s rout on Wall Street.
On Friday afternoon, the US declared a public health emergency mandating quarantines for anyone traveling from the epicenter of the outbreak in China. Trump suspended entry into the US for foreign nationals who have recently been in China, other than immediate family of US citizens. Flights from China to the US will be funneled through seven airports from Sunday (JFK, O’Hare, SFO, Seattle, Atlanta, Honolulu, and LAX).
Treasurys rallied to close out what some would suggest was an improbable month for bonds.
Q4’s reflation narrative is now in serious jeopardy, with 30-year yields falling below the Fed’s inflation target on Friday. 2-year yields plunged an incredible 9bps to the lowest since September 2017. So far in 2020, 2-year yields have fallen every day but five.
“US rates will remain beholden to the path of the coronavirus and, to a greater or lesser extent, the assessment of the World Health Organization”, BMOs Ian Lyngen, Jon Hill and Benjamin Jeffery said in a note. “The actual impact to US growth doesn’t appear to be very significant, but clearly the risk-off tone that has taken place has already spurred quite a significant repricing in Fed expectations” even before Friday, Credit Suisse’s Jonathan Cohn told Bloomberg, in a phone interview.
10-year yields were lower by 17bps on the week. That looks like the largest weekly drop in five months. The 21-day Z-score is nearly -3.
Given the above, you can probably surmise that it was another monumental month for the long-bond ETF. In fact, there have only been six better months than January for TLT since 2008.
It is now overbought – again.
For emerging markets, this was a dark, dark stretch. This will go down as one of the worst weeks for the EM equity ETF since the crisis.
Previously bulletproof US shares finally got hit, despite decent earnings where it counted. The S&P dropped more than 2% on the week.
Indeed, this was the worst week for US equities since the PBoC let the yuan slide through 7.00 early in August. It was the second weekly loss in a row for US shares.
The offshore yuan is trading well weaker than the last onshore print, making guidance from the PBoC coming off the holiday especially interesting.
The S&P 500 Info Tech index had its sixth worst day since the December 2018 rout on Friday.
Now that is a “real” state of emergency.
We jest. But, again, it is worth noting that this came during a week when Apple and Amazon both beat and Jerome Powell, although characteristically hapless, didn’t say anything overtly untoward during his post-meeting presser.
Gold is up nearly 5% already in 2020, coming off 2019’s 18% gain.
“It’s not a stretch to imagine heavy selling interest for risk assets” in Asia when markets reopen next week, BMO’s Lyngen and Hill cautioned. “The first trading day in the Year of the Rat will also likely mark the start of a correction, with downside risk at least in line with the declines observed on the Hong Kong market (Hang Seng Index -9.0% since 17 Jan) and Taiwan (-5.5% on opening day/30 Jan)”, SocGen warned Friday.
Get ready for fireworks.