February 10, 2020 - Financial Occultist

The euro is soft on all fronts

The euro is the laggard today as the pain trade continues for euro bulls.

EUR/CHF is no exception as the pair threatens the low of the year at 1.0663. We’re just 5 pips from there now and if that breaks, the next big support level is the 2017 low of 1.0632.

More risk aversion is creeping in today as the minutes tick by. Stocks in the US are holding up but Treasury yields are sliding and gold is climbing.

European shares start the week with modest declines

10-Feb-20 11:10 pm

Anirudh Sethi

Major indices close with small declines

The European shares are starting the week with modest declines. A look at the provisional closes are showing:

German DAX, -0.18%
France’s CAC, -0.22%
UK’s FTSE 100, -0.26%
Spain’s Ibex, unchanged
Italy’s FTSE MIB bucked the trend with a gain of 0.1%

In the European debt market, the benchmark 10 year yields are ending mostly lower. The exception is the Italian 10 year yield which eked out a 0.5 basis point gain.

In other markets as London/European traders look to exit.

The EURUSD is trading at session lows and down 34 pips on the day
The EURGBP is also trading near lows at down 43 pips on the day
The GBPUSD is higher but off its NY session high at 1.29455. The current price is trading at 1.2913.
The GBP is the strongest of the majors, while the EUR is the weakest.
The USDJPY, USDCHF and AUDUSD are trading within 3 pips of the Friday close
The USDCAD is trading just off its high for the day after moving down about 20 pips into the London morning session, only to snap back higher (and trade up about 20 pips) in the New York session

IMF staff report: Coronavirus poses risk to Japan’s economy. Critical of BOJ inflation stubbornness

10-Feb-20 09:45 pm

Analysis

Anirudh Sethi

IMF staff report on impact of coronavirus and Bank of Japan policy objectives

Spread of coronavirus poses risk to Japan’s economy
If prolonged and widespread, virus likely to affect Japan’s tourism, retail trade and investment
Urges Bank of Japan to conduct comprehensive review of its policy objectives
Bank of Japan should redefine its 2% inflation target as a long-term goal, set range around target
Bank of Japan should clarify that objectives other than inflation, including financial stability, also matter for monetary policy
Bank of Japan’s over optimism hitting 2% inflation target has hurt its credibility

Jim Simons is the most successful trader of the past 30 years by a country mile.

10-Feb-20 08:50 pm

Anirudh Sethi

Jim doesn’t do economics. Jim doesn’t predict where markets will go. Jim doesn’t have a view on the markets. Jim’s trades are wrong almost 50% of the time. Jim doesn’t follow fundamentals.

China president Xi: Situation over prevention of coronavirus outbreak is still severe

10-Feb-20 06:44 pm

Analysis

Anirudh Sethi

Some remarks by China president Xi Jinping via state television

China will definitely win the fight against the coronavirus outbreak
China will adopt more decisive measures to contain the spread in Hubei
To speed up development of drugs that have good clinical effects against the virus

Xi is not really downplaying the situation too much for the time being but is still exerting some calmness in his attitude as he proclaims that they will be able to best the beast.

As Chinese businesses and factories reopen this week, it’ll be interesting to see if there will be a further spread of the virus – although the highest precaution is being taken. The fear is that is that we may see a resurgence in the number of cases some time down the road.

And the worst-case scenario as mentioned before, is that we may very well have to live with the fact that this virus is here to stay and it will be a threat to our day-to-day lives.

Is the coronavirus’ impact on financial markets overblown?

10-Feb-20 06:40 pm

Analysis

Anirudh Sethi

A look at the key question in markets right now

CMS 1
The Coronavirus continues to see an outbreak globally with the latest estimates putting the death total over 900 persons. With fear continuing to spread and millions disrupted, financial markets have certainly been impacted.

Typically, most problematic geo-political or economic events have always managed to yield some material effect on markets. This was seen earlier this year with the rising tensions between the US and Iran.

However, the Coronavirus is itself an entirely different animal, whose impact is far more globally reaching. This article will explore how the virus has correlated to financial markets and which instruments should be looked at.

How does the virus affect global markets?

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China says closely monitoring impact of virus outbreak on foreign trade

10-Feb-20 01:42 pm

Analysis

Anirudh Sethi

Comments by the Chinese commerce ministry

Some Chinese exporters have resumed production
No reason to adopt intervention policies on international trade due to coronavirus
Hopes other countries will provide favourable conditions for normal trade

At the same time, Reuters is reporting that Hon Hai/Foxconn’s request to resume production in Shenzhen has been rejected as authorities will want to check the plant again to ensure that virus control measures are properly in place.

In any case, I think demand and supply conditions in China over the last few weeks have been absolutely distorted due to the coronavirus outbreak situation.

International companies are struggling to get the necessary supplies from China to carry on with their product manufacturing/offering, while overseas exporters are facing an extreme shortage in demand as China is in a partial lockdown for the most part.

Sure, businesses and production are resuming but I wouldn’t expect social activities to return back to normal any time soon and most citizens – if not all – will just stock up on supplies and return home after work. There is no need for non-essential expenditure at this point.

Also, this isn’t just affecting international trade but as more people become fearful about the coronavirus outbreak in other countries, consumption activity is also seen declining – especially in Asian countries which are reporting a higher case count now.