Financial market research and analysis

EQUITIES

Blowout fourth quarter earnings and subscriber growth at Netflix has refocused investors’ attention on market fundamentals. Market sentiment had been impaired by worries about the new coronavirus out of China, which has now spread to the United States. Republican senators voting in ways that support President Donald Trump in the impeachment trial may have added to the sentiment turnaround.

In Asia, regional stock markets mostly rebounded from Tuesday’s losses but the Shanghai Composite, the benchmark for shares in China was the exception to the rule. Shares in China have been on a hot streak since the phase one trade deal was agreed. We would argue the risk of an economy-crippling pandemic is a good enough reason to sell out. Travel and leisure companies, including Macau casino operators listed in Hong Kong have been hit hardest and still look most at risk if wider markets start to seriously rollover.

The Dow Jones at one point shed 200 points on the news the coronavirus had contaminated a US citizen but has since rebounded in afterhours trading. Higher than expected international subscriber growth is a welcome sign Netflix can weather the storm of new competition from Disney+.

The rally in extended trading took Tesla to a market valuation over $100 billion for the first time. There was some news that Michigan State would allow the direct delivery of Tesla vehicles. Really the gains in the share price are just about more investors betting on the brilliance of Elon Musk and a big future for electric vehicles.

European shares are tracking US futures higher. Germany’s benchmark equity index the DAX is leading the charge. The DAX is breaking out to new highs with rising evidence that an industrial rebound is just around the corner. A jump sentiment on the monthly ZEW survey has underscored the sense of optimism for Germany in 2020.

FOREX

The pound is holding firm with just over a week to go until the UK’s official exit from the European union. GBPUSD is clinging onto 1.30. The UK employment rate at a record high of 76.3% is casting major doubt over recent talk of a January rate cut. Sure, employment is a lagging indicator but with interest rates already at rock bottom, another rate cut would raise a lot of eyebrows.

The yen is retreating from recent gains brought about by haven flows and higher growth forecasts from the Bank of Japan with USDJPY moving back above 110.

The euro is consolidating with traders not convinced a regional growth rebound can surpass that of other parts of the world including the US and UK. EURUSD is languishing beneath 1.11 ahead of the release of Italian industrial orders today and the ECB policy meeting tomorrow.

COMMODITIES

The International Energy Agency (IEA) forecast for a surplous of oil in first half of 2020 is seeing crude oil futures turn lower. The IEA’s Fatih Birol told a crowd at the WEF that “I see an abundance of energy supply in terms of oil and gas”. He even went on to explain what many of us have been observing that the surplus explains the limited and fleeting to reaction to supply disruptions like the current situation in Libya. The best hope for oil prices to make any traction is that IEA have undershot a forecast for the slowest pace of US oil production in a year by February.

Gold’s underperformance during the corona virus outbreak has some worried about the longevity of its month-old bull run. In theory gold’s status as a haven should see its price skyrocket on the prospect of a pandemic. Actually, the selloff in equity markets has also been short-lived. What we have observed is that gold will get a kneejerk positive reaction to geopolitical uncertainty but give it back equally quickly. The longer-term gains are to be add from central banks adding liquidity and its correlation to real yields.