Asian Markets Fall On Growing Coronavirus Cases

Okay, good morning, Tuesday, 21st of Jan. Hope you're doing well. And to get you up to speed with this morning, obviously as the headlines would suggest, quite a lot of attention toward how the Asia-Pacific markets have reacted overnight to more and more growing press coverage about a new virus that has been spreading in China. So before I get into the details of what exactly that is and potential outlook then for the impact it could have going forward, let's just have a quick review of the charts. And you can see definitely a, an Asia-inspired reaction in markets. So at around 1 AM London time, you can see a distinct downturn in the US index futures, T-notes going bid. Gold the same. However, gold has reversed course and we're literally trading to the tick of where we were, having reversed the entire move. Equity markets similarly also stabilizing. Currency markets have been unmoved on the back of this news, so it's been the other asset classes in focus. Oil also unmoved. And interestingly to see then, just an update from where we were when we delivered the briefing yesterday, So that knee-jerk gap up that we had, as we had anticipated, had no lasting implications in regards to the kind of civil situation in Libya and then that disruption on the pay side for the security forces in Iraq. So oil remains down close to its S2 already this morning as that kind of slight negative tailwind, I guess, to the overnight performance in Asia But we're going to talk about that now in a bit more detail. Before I do, just a reminder, remember to subscribe to the YouTube channel if you don't already do so. Obviously, myself and my— and the team will be delivering our briefings every morning, and then we'll be covering live events as well, namely the Fed at the end of the month. So don't miss out on that because you'll have the opportunity to talk to us live and ask questions as well. But going back into the news then, let's have a quick look at things. Flashback to SARS for Asian equity markets with new virus. So consumer-related stocks dropped about 2.5% in the overnight session, uh, in the Hang Seng in Hong Kong over the outbreak. Could affect spending over the Lunar New Year. So you remember that Lunar New Year kicking off, and that's kind of a complete shutdown. It's a really important kind of commerce period for China. When people are not at work, they're out and about town, and they're meeting family and going to restaurants and spending. And so there has been an immediate connection towards this virus outbreak could have an— impede then the economic situation in China. Now let me just bring this up. I saw this as an infographic, you've probably seen it circulating by now, but China have confirmed 224 coronavirus cases so far. A fourth death now from the outbreak, with the World Health Organization calling an emergency meeting amid the spread to more cities. So you can see here the, uh, map. I know it's a bit small, the map of China. So obviously Beijing situated in the northeastern part of the country, but the actual outbreak said to have been a seafood and animal market in Wuhan, China, which is based in the eastern part of the country, as you can see here in the top left. Now, what is this? Well, a lot of people are drawing comparisons, of course, to the SARS virus in 2003. A couple of stats though to go through with SARS for those who, who don't remember it with that much detail. It affected 8,089 people worldwide and resulted in 774 deaths in 37 countries. Mortality rate of less than 10%, though. But importantly, one of the things here, when I've been just reading about it on the way into work this morning, is that for context, on the same period, seasonal regular flu in the US killed about 80,000 people in the same year, whereas SARS killed 774 people globally. So yeah, looking at it in comparison terms, I think statistically speaking, you're way more likely to die of normal flu than you are to contract— or you were to contract SARS. So obviously there's, you know, with these types of events, I do feel like, you know, if you, if you switch on Bloomberg TV this morning, you know, you would think you need to run to Tesco's, buy your baked beans, go home and batten down the hatches because the zombies are coming out and the virus is going to be floating around in the air trying to nip you as you go about your business. But, you know, this is just the way in my mind that the media cycle works. It's such a— it really cuts to the human core of what humans, particularly the way our society is structured, what we fear, which is a mass epidemic outbreak that is uncontrollable because we can't see it, you can't fight it. And I think that's just such a strong narrative for the, for the news that it's getting pumped like nobody's business this morning. But I do feel my initial reaction to this news is, yeah, I mean, obviously from a from a China point of view, geographically, that's the most sensitive area, given how dense the population is. And also as well, just given the, I guess, the fact that in many areas, certain, I guess, rules and regulations might not have the best, cleanest standards when it comes to things like seafood and animal markets, where essentially was said to be the center of the outbreak of this particular virus. So there has been a bit of a read across in the Asian session. So to give you an idea, some of the areas which have been getting hit: cosmetics, shopping malls, restaurants. If you think back to the SARS virus, Cathay Pacific actually fell almost 30% at the time. Now You know, don't get me wrong, that's not happening quite yet. If anything, actually, airline stocks performing generally seasonally well going into the Lunar New Year period. But obviously people, traders, price in future expectations, and you're looking at an economy that in China is stabilizing. But in the case of Hong Kong, which has seen quite a meaningful sell-off overnight, Hong Kong has already been under significant pressure pressure because of this, which is basically not the headline alone, but the situation that their economy has been impeded by the ongoing months and months and months of violent protesting that's been happening. And so overnight, you've also had, just to boot, that Moody's have cut Hong Kong's credit rating, saying the government's slow and ineffective response to months of protests has prompted a reassessment of Chinese territory's institutional strengths and governance. I believe this is the second downgrade that they've had since the protests have been ongoing. So it just kind of exacerbates, adds another kind of log on the fire, if you like, of economic pressures that can be facing Hong Kong at the moment. And hence you've had this, this reaction. But You know, could it, could it sell off more? In short, I think yes, potentially. Remember, the US are coming back to market after the Martin Luther King Jr. Day holiday yesterday, so volumes will return back to normality. However, do I see a long-lasting— this is the beginning of a new episode of a market correction based on this coronavirus? I'd say no. I think after, once the dust settles, I think people, some degree of rationale will return, and certainly in the UK, the press will turn back to Meghan and Harry before you know it, and no one would be talking about this. It's kind of where I sit in my mind's eye at the moment. To give you a bit of context though, this was an interesting graphic Bloomberg did run, and this goes back to 2000. This, this graphic is looking at 2003-2004. And as you can see here on the left-hand side of the axis, you've got Chinese— well, I say Chinese— Hong Kong quarterly GDP. So zero would be here where I'm running my mouse at the moment. So this would be negative, and you can see this kind of orange rectangle. This was when the SARS outbreak period happened, and you can see there was a meaningful impact here. A lot of people obviously just locking down the hatches and not going out, not spending, not hitting the shopping malls. This has— does have implications, of course, for the likes of the performance of an economy. And so that did get priced in and have an impact. However, the market quickly came back strongly in the period thereafter. So the actual— again, the very sharp initial interpretation, and but a consistent recovery seen thereafter. And I think psychologically this is quite a reflection of how humans, as I said, tend to react to this type of news, almost an overexaggeration to the first piece of small information. Only then rationality is a calm, restored return to, to normality. And I think this will be exactly the same, is what I'm saying. Okay, moving off that, let's talk about a few other things, then I'll hand you over to Sam. This was one thing that potentially could have been a bit of a risk. For markets, but seemingly has gone in a more positive fashion. And that is Macron and Donald Trump have agreed to a truce in their dispute over digital taxes. That will mean neither France nor the US will impose punitive tariffs this year, according to a French diplomat. So of course, all things can be subject to change, but if anything, I'd say this is a positive development. This, of course, coming ahead of Mr. Trump Who— two things. One, uh, you'll remember in a briefing yesterday on the calendar that I was showing you of highlights, uh, the final filings have been submitted as his Senate trial is set to recommence on the impeachment of Donald Trump. Uh, so that starts today. Uh, you've had various different things come out yesterday. Basically, there's two impeachment charges, uh, obstruction of Congress and abuse of power. Trump has come out and his legal team— I can't remember the number, it said some crazy number— where he's got basically an all-star squad to see off this attack that he's under at the moment. And obviously we talked about this many times before, so I'm not going to go into it. The actual likelihood of a follow-through of this actually materializing, where the Senate follows the House's lead and actually impeaches the president, is absolutely minimal. So not going to talk about it any more than that. The other thing though is Davos. As you've probably seen if you're watching the financial news networks, that continues. It's going on all week, and Trump is down to speak. So 11:30 to 12:00 Central European Time, he is going to be speaking. So late morning London time, you're going to be looking out for a special address by Donald Trump, the US president. That does come on the back of— from a global perspective, you had the IMF They issued their World Global Outlook yesterday to kind of kick off Davos. Nothing market-moving from this, so just wanted to give you the headline really. They trim their global economic outlook but tone down risk warnings given some of the recent de-escalation with the Phase 1 trade deal between the US and China. Other thing that's happened overnight is the People's— well, people— we're talking about the PBOC— talking about the Bank of Japan. They left interest rates unchanged. However, they did raise their growth forecasts completely in line with expectations. They're raising their growth forecasts, of course, because of the $120 billion fiscal stimulus from the Japanese Prime Minister, but they're still remaining very passive in terms of just holding off on any policy changes at the moment. So still, if anything, holding holding a dovish stance. So no real shock result there at all. And then from an earnings perspective, uh, things are picking up a little bit this week. It's actually next week when things really do, um, step up a few gears and we start to get hundreds of companies reporting. But there is one aftermarket that I think will draw a bit of attention. That of course is Netflix. I was just trying to recall the numbers from memory, and I'm sure someone will correct me if I'm wrong, but I think Netflix over the last quarter, uh, comparative to Disney's share price performance, has been a wild divergence. And what I mean by that is Disney have been absolutely smashing it at the moment, Netflix suffering on the back of— for the first time really ever, they're getting increasing competition not just from Disney but from Apple and AT&T and so on and so forth. And so their share or their options are pricing in a potential share price swing of close to 8% on the back of their numbers, which sounds pretty spectacular, but actually that's about average given these kind of social media type— well, I say social media, I say FANG names tend to be particularly of a smaller nature like Netflix, highly susceptible given that their underlying financial metrics are very much based on forward-looking multiples. And so, uh, be interested to see how they, they fare when they release their results. From a calendar perspective, what have we got? Pretty quiet actually. As I said earlier, you do have the US returning to market, and obviously be interested to see how they respond to this latest virus. Outbreak, but I think we've covered that and I've given my view in that respect. But from the UK, you've got the latest employment data, so the employment change, unemployment rate, and average earnings. And then from Germany, you get the ZEW economic sentiment. And then you've got Trump speaking late morning from Davos as well. But from the US session, it is particularly quiet. There's not actually a great deal going on, uh, Schatz auction, a longer-dated gilt auction for any fixed income traders, um, just so you are aware. But that's pretty much it from me, so I'm gonna hand you over to Sam, and I wish you a good day ahead. Any comments, of course, or questions, feel free to leave a comment on the video on YouTube. I'll do my best to respond throughout the day. Thanks very much.

Hi guys, good morning. Hope everyone is doing well. Like I said, yeah, the US back in, uh, to the market today, so it'd be interesting to see what happens when we get that first cash open that comes through. And just having a look here, equities, they are currently on their lows. I think it's probably a bit of an overreaction really, isn't it? But anyway, some levels to keep an eye on for the S&P. We did not quite make the all-time high yesterday in very quiet trade. So let's just get a trend line on those last couple of highs, as that at some point could well come in for what you probably call a pretty important line in the sand to the upside, should we at some point, uh, push, uh, up over the next, uh, well, session or coming days. 33.19 to the upside. To the downside, a level that broke through late on Thursday evening, it hasn't quite— actually, yeah, they've been tested a couple of times. 33,0809, strong resistance on Thursdays. Decent push-up, uh, to then get up to, uh, towards another sort of almost 30 points to the upside. We have tested that 1, 2, 3 times, uh, so that to the downside is a pretty good line in the sand as well. The S1, albeit from yesterday because these pivots have rolled over due to the bank holiday, has acted as a bit of resistance following a little bounce that we had. But as well, that is the low that we had on Friday. So 3316 and 3319, strong resistance. Now let's call that a zone to the upside. And 3308 as a strong support level you would want to keep an eye on. A break lower, you'd then be looking at these lower points that we had back on Thursday afternoon, early afternoon, and then some of the highs around the round number, the 3,300, uh, as next areas to consider. Just going to bring in a trend line that I think is, is worth having on. We have, of course, with this move overnight, uh, broken through that in the early hours. You can see here on the 14th, and then the 16th broke through yesterday, finding strong support, and that break now coming at 1 AM. So if at any point we do get a nice recovery just keeping a watch where that could be, uh, with these trend lines coming back in. But those would be the levels I'd look to have on, uh, to the downside. I think, you know, 3,300 is as good a target as any if that low breaks. And if this holds, well, uh, you know, those, uh, resistance points look pretty good. And that's really the general theme across the board for the Dow and the NASDAQ as well, looking pretty similar. Euro yesterday had a a bit of a, an attempt late into the session of trying to get back above some of these key support levels going back to the beginning of the year, but also the middle part of December and early December as well. You can see we, we broke through, but on the open we closed back above. However, we are now back below this level, and if that is to remain Well, let's put this on that longer chart because having a look here, you can see this market has a bit of room to potentially go down. We didn't quite make that low, the 6th, but that December— or last day of November, beginning of December low around 1.1060 would be an obvious target if this is to, to materialize. And I think that's what I would favor despite the, the small gap higher we had this morning. Levels above where we're trading I would have 1.1144 on the futures marked up. It's yesterday's slash today's pivot, the low of the 14th, and then the low that we had on that breakdown on Friday as well as a pretty strong and important area. So, uh, albeit where we're trading now, as long as we stay below there, you'd favor a move lower. If we come back above it, obviously we've got those highs from today and yesterday, but also that 1.1144 44, 45 point that I'd be, be looking to, to have marked up. The pound, let's bring this in, just drifted higher really from yesterday morning. I know we got the, the data out today. Let's have a quick flick back to, to that calendar there. You can see, you know, if you're in a pound position, uh, obviously make sure you're out by, uh, 9, you know, 25, 5 minutes before at least, uh, Retail sales, the last reading that came out, out of the UK on Friday, we saw a decent move lower. So it's interesting to see maybe that data is just having a bit of an impact on this market. However, I wouldn't expect this one to really move things. However, the pound— let's have a look at some of the levels of interest. A break lower on Friday, much coupled with a stronger dollar as well, but the pound was weak from that retail sales. The high that we made this morning, just a bit above there, let's call it 1 30.50 to make it more round. You can have that as a zone along with yesterday— uh, today's high. You can see here some nice lows from the 15th, the 16th, and then the afternoon on the same day, in the morning, midday on the 17th, as a strong support before that breakthrough. That's your line in the sand for today that I'd have marked up above there. Fine, we can get a bit of a relief rally and target some of these higher levels around 130.85. Nice breakdown area there. If that is to hold and we do drift lower All right, well, look how important this area is that we touched yesterday. It's also the low that you had on the 13th and the 5th, uh, and the 14th, I should say. A strong, strong level of support. And as we know, why did we find that support again yesterday? Well, let's just remove everything, bring in that trend line on the daily chart here. Doesn't get much more important than that whole area. Break below there, the floodgates could open. Very quickly from a technical point of view. I think you get 23rd of December, uh, level almost in a candle, and then you'd be targeting as well these points around here, which you can see marked up around the 128s, low the November 11th and 25th. That's what I'd be favoring on a break of that. Have to wait and see how that materializes. Obviously on the daily chart, looking here for an actual close for that extra confirmation as well. Quick look over to gold this morning and oil, just to wrap it. You can see a full reversal of that spike higher. We're back to where we were trading, um, in the early hours of yesterday, really. That's push through coming in the early hours this morning, 1 o'clock reversal. Fine, uh, the trend line here starting on the 14th is key. We're coming to test that now. Uh, let's just get this on and you can see the significance. I mean, what a trend line. I mean, that is— that's chart, um, perfection on that trend here. Getting a break of that, it's also got the low of yesterday around midday as well. If that was to break, you know, the way gold can move, and especially that volume starting to maybe come back in today from the bank holiday yesterday, I wouldn't argue out a quicker make a move down to some of these support levels. However, because it's early morning, you're going to want a confirmation on that break. Don't— I wouldn't recommend going in too aggressive. Let's, you know, see 15 or even the 60-minute, uh, time frame for that to be a support. But at the moment, holding firm levels above where we're trading. You can see we're getting squeezed in. We broke out of, uh, the resistance yesterday in the early hours, 1564, and we come up to trade near some of these levels on the breakdown that we saw on the 8th, 1567. Now let's move that up towards 1570. You've got a, a couple of lines in the sand. One of those just happens to be diagonal with that trend line and the resistance there. So I'd almost wait, uh, and see what happens around, uh, the trend. Obviously a false break is a good opportunity to get long again to target those highs. Uh, we'll have to wait and see how that reacts. Having a look over at, uh, oil. Yesterday, obviously, uh, come in this morning, come in yesterday morning and the spike. We're saying don't get carried away about buying because the last two times oil was spiked, it's, uh, you know, filled that very quickly and then continued lower. Let's just bring that into picture just to confirm that. September, you get that spike. Look at that big, big move from the top of the spike on the futures down to where it found a bottom, 20%, uh, and then Obviously we had the gap higher quite recently on the Saudi, uh, on the Iran stuff. And yeah, I mean, that's still going from, from that spike. So just be careful when, uh, when oil gaps up, it's not a confirmation it's going to continue to go and go and go. A couple good opportunities yesterday actually on the, on the trendline breaks. And the guys that I'm, you know, working with in Stage 1 of the course on getting in on that, really nice breakthroughs. The, the trends came back to retest in the afternoon, and, and you can see that has continued to, to fall down to today. Horizontal support below where we're trading, you'd argue, uh, obviously a couple of key levels near where we're trading. You see the low we found now is a quite key level on the 16th. It was found support on the 15th, and before that the 13th as well. So I definitely have that marked up above where we're trading. Well, along with that trendline break, you know, have the low of yesterday in the early hours, and then you've got the 17th and 16th, which are the highs back on there. So really key level, 58.39 as well. So have those marked up as, as key levels of, in this case, resistance. This trend line, you can see a bit of a fake out there, and this is the advantage of obviously waiting for that close of the candle. This is what I'd be looking to see in gold. Can we confirm that break lower? And that would give me confirmation of wanting to go in early hours, uh, lower volume trade here. We're looking like we're actually going to close now above here, and of course that could lead to a push higher. Quick look over European equities, uh, just finding a bit of support, but we are down quite heavily, 86 points this morning. Understandably just finding a bit of, uh, relief following that push lower. And you've got some key levels below here, the low double bottom from the 15th and 16th, that if we are to have a further move to the downside, this is where you really would be looking to, to find some support. Anyway, I hope you all have a good trading day. The calendar relatively light after we get through that 9:30 and 10 o'clock data release. You can see, yes, the US are back in, and Trump is speaking this morning in Davos, in cold Davos. So really you could argue that the majority of the moves this— today are going to be done this morning, but we have to wait and see to see how the afternoon unfolds. But just be aware there's no speakers in the afternoon schedule, the data is thin, and China obviously going on holiday the back end of the week as well. I hope you'll have a good trading day, and I'll catch you in the chat later on.