It’s Valentine’s Day, and, jumping immediately to a non sequitur, you’ll note that global stocks have fallen on five of the last six Fridays, thanks in no small part to traders’ aversion to holding risk into the weekend during the coronavirus outbreak.
That “strong bias” (as Bloomberg’s Garfield Reynolds put it) against staying long on Fridays was muted headed into the US session, as global stocks meandered after the latest data showed Thursday’s surge in virus cases due to the new reporting method in China was likely a one-off. Total cases rose “just” 5,090 on Friday. The death toll in China jumped another 121 to 1,380.
The number of new cases in Hubei was 4,823, down sharply from Thursday’s massive 14,840 jump when the province announced the new method for tabulating infections.
That should help stabilize risk sentiment. But, as ever, we’re far from out of the woods and we haven’t even begun to see the impact on the Chinese economy come through in the data.
“So far, even though a number of provinces have resumed production this week, there have been limited signs of activities returning to their normal levels”, SocGen’s Wei Yao said, before noting that “daily coal consumption of major electricity companies remained 42% lower compared to their levels in the same period last year”.
“[It’ll] be critical in the coming weeks… to watch if local governments can facilitate the full resumption of production whilst avoiding a wider outbreak with preventive measures [because] if not, the risk of a slowdown extending into 2Q is rising”, Wei went on to caution.
Meanwhile, the German economy stagnated in Q4, a slightly worse showing than expected. I’ll get to more on this later, but the bottom line is that the word’s fourth largest economy grew just 0.6% in 2019, and it’s wishful thinking to believe 2020 will be much better.
“In general, the German economy remains stuck between solid private consumption and a paralyzed manufacturing sector”, ING said, in an e-mailed note. “Even though there had been several one-offs, explaining the short-term weakness, the bigger picture of the German economy is clear: it has been in a de facto stagnation since the summer of 2018”.
The euro is, of course, languishing at its lowest levels since 2017. Options suggest sentiment is getting even more bearish in keeping with spot’s inexorable grind lower as the bloc’s flagging economy stokes bets that the knock-on effect from the virus will force the ECB into more easing.
Of course, that lends itself to a stronger dollar, which is a bitter pill to swallow for the Fed. Like other developed market central banks, Jerome Powell and co. are struggling to get inflation up to target.
The allure of US assets only exacerbates the problem by facilitating USD+ flows. And speaking of that, it’s back to “America first” in 2020, as US equities have outperformed their global counterparts in each week to start the new year.
That’s the longest such streak in more than a decade.