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China official PMIs for January: Manufacturing 50.0 (expected 50.0) Services 54.1 (53.0)

  
Analysis, Economy
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The response to these will be – “Just wait until the next one, it’ll be much worse”.

Difficult to fault that response really. This will impact ahead, for example:
  • Coronavirus – A province in China has requested firms stay on holiday until February 10
Since posting that another province has followed suite, officials in Heilongjian want firms to stay on holiday until February 10 also.
Anyway:
  • Manufacturing comes in at 50 vs. expected 50.0, prior 50.2
  • Non-manufacturing comes in at 54.1 vs. expected 53.0, prior 53.5
  • Composite comes in at 53.0 vs. prior 53.4

Warning on the potential for a recession due to the coronavirus – a critical ‘cushion’

  
Analysis, Economy
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Stephen Roach warns on the potential for the coronavirus outbreak to shock the world in a recession

  • Historically, the rapid expansion of cross-border trade has been an important part of the global growth cushion that shields the world economy from all-too-frequent shocks. 
  • Now, however, reflecting the unusually sharp post-crisis slowdown in global trade growth, this cushion has shrunk dramatically, to just 13% over the 2010-19 period. With the world economy operating dangerously close to stall speed, the confluence of ever-present shocks and a sharply diminished trade cushion raises serious questions about financial markets’ increasingly optimistic view of global economic prospects.
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Who is Roach?
  • a senior fellow at Yale University’s Jackson Institute for Global Affairs
  • a senior lecturer at Yale School of Management
  • formerly chairman of Morgan Stanley Asia and chief economist at Morgan Stanley
Stephen Roach warns on the potential for the coronavirus outbreak to shock the world in a recession

Coronavirus fears unlikely to turn the Fed into doves

  
Analysis, Economy
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The view from TD is that forecasting the extent of coronavirus contagion to the global economy or ‘risk’ is difficult.

But:
  • “we don’t expect the Fed to go more dovish simply because the market has become more nervous”
  • yield on the 10 yr is significantly lower since the start of the year
  •  “We don’t think the Fed is going to be a catalyst for a continued move lower in Treasury yields” 
However, the Fed will keep an eye on developments re the virus, on market sentiment and potential cascade for risk-off.
They’ll also keep an eye on what this guy wants, right?
The view from TD is that forecasting the extent of coronavirus contagion to the global economy or 'risk' is difficult.

UK virus researchers estimate 250,000 people in Wuhan will have coronavirus in 13 days

  
Analysis, Economy
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It will spread to nearby cities and countries next

It will spread to nearby cities and countries next
A UK expert on the transmission and evolutionary dynamics of infectious diseases has published a paper with four colleagues that estimates transmission parameters for the Wuhan coronavirus and it’s terrifying.
Dr Jonathan Read estimates that only 5.1% of infections in Wuhan are identified and that an explosion in the number of cases is less than two weeks away.
By February 4, he writes that “our model predicts the number of infected people in Wuhan to be greater than 250,000 (prediction interval, 164,602 to 351,396).”
Based on travel patterns, his team predicts the cities with the largest outbreaks elsewhere in China to be Shanghai, Beijing, Guangzhou, Chongqing and Chengdu. The countries with the greatest risk of importing it are Thailand, Japan, Taiwan, Hong Kong, and South Korea.

(more…)

Eurozone January flash manufacturing PMI 47.8 vs 46.8 expected

  
Analysis, Economy

Latest data released by Markit – 24 January 2020

  • Prior 46.3
  • Services PMI 52.2 vs 52.8 expected
  • Prior 52.8
  • Composite PMI 50.9 vs 51.2 expected
  • Prior 50.9
Despite some green shoots observed in the manufacturing sector – as exemplified by Germany earlier – overall economic conditions remain tepid in the euro area. The services sector showed a decline and the composite reading stayed flat compared to December.
The fact that manufacturing conditions continue to sit in contraction territory isn’t too helpful as well. In short, while there are some suggestions of things getting better, it still isn’t enough to point towards a more solid recovery for the time being.
EUR/USD is still keeping weaker around 1.1045 currently, failing to take heart in the more upbeat German readings earlier.
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