Financial market research and analysis

EQUITIES

Asian equities are pushing higher overnight. China reporting the lowest number of new cases of the coronavirus since January keeps the prospect of a pandemic at bay. China’s CSI 300 is flat today but has risen the prior six days in a row and is up 8% from the lows.

The Dow and S&P 500 notched up record highs, boosted by the approval of the T-Mobile and Sprint merger. Stocks finished higher but ended well off daily peaks in signs of little reticence that the Fed is ‘closely monitoring’ the coronavirus. Our main takeaways from Fed Chair Powell’s testimony to Congress were that 1. Deeming the treasury purchases a success and the word ‘gradual’ in plans to stop using repo operations is good from a liquidity justification to be long stocks, but 2. Crystallising the threat of the coronavirus is not so good from an economic perspective.

The DAX looks set for a higher open after 1% gains on Tuesday. The FTSE 100 looks ready to open back above the 7,700 threshold. Looking now at the STOXX 600 at record highs and up 6 of the last 7 days, it looks like markets have already priced in a big 2020 earnings recovery. If the coronavirus, or some other black swan does throttle the expected recovery come Q1 earnings season, then we could be in a tricky spot.

FOREX

The New Zealand dollar s the top FX-mover overnight following the RBNZ decision to keep rates on hold. The decision was anticipated but a message of now more cuts this year saw the Kiwi climb 0.9%.

The dollar was lower yesterday because it felt like Jay Powell left the door slightly ajar for a rate cut this year. It seems that one cause for the Fed to adjust its plans and lower interest rates again is the coronavirus. We would look at any US dollar weakness as a correction. When all the CB’s are eyeing the coronavirus as a possible reason to add policy accommodation, the USD should still be favoured when the US economy is outperforming others.