Risk Sentiment Returns As The S&P 500 Notches Another Record HighS&P 500 & Bonds – The Teflon ES (S&P 500 futures) touched 3338 a new all-time high, and USDJPY is back above the 110 handles as investors continued to rotate into US stocks, which offer the less risky and safest equity market harbor amid the China flu scare.
With risk sentiment returning, Asia price action today suggests, the Masters of the Universe (bond traders) will continue to fade the bounce in fixed income. But more significantly for SPX investors who were quick off the mark, they were offered up a chance to buy a rare dip in the index. Gong Xi Gong Xi!
Not so great for gold markets as with the S&P 500 making record highs, the downward skew has been dominant. And with gold’s seasonality bounce about to fade as we enter the LNY, we could see a more pronounced unwinds if risk sentiment continues to veer favorably.
Sadly, I’m still taking a deer in a headlight approach to the Yuan. I guess I’ve traded the CNH over to many LNY. For those that follow my daily blog, you know that I started ratcheting back short-USD EM exposure last week in anticipation of some profit-taking, which may bring forward the stumble in risk appetite that typically occurs in early February. This could be magnified, possibly by a sharp decline in China’s retail sales and catering and hospitality revenues due to China’s flu. But there’s way too much seasonality interplay these days not to factor some degree of seasonal risk tendencies into the playbook.
The Bank of England is the one central bank in play this month. Investors expect the major swing factor to be the flash PMIs, published on Friday. Yesterday decent UK employment figures continued to resonate in Asia and help lift Cable. Flow wise, and carrying through from last week, Asia macro traders want to buy Sterling. Whereas I think the smart money view, not to say my colleagues in Singapore are dumb, is that a one and done Bank of England might provide excellent entry points below 1.2900 (especially on an algo overshoot). “Cable” can still print 1.4000’s this year, depending on just how dovish the Bank of England decides to pivot.
Wuhan coronavirus outbreak.
China National Health Commission minister Li Bin says there are 440 cases of new virus across 13 provinces and cities, with nine deaths reported in Hubei; they are strictly controlling food markets. Which confirms Health agencies are now working much more proactively and transparently to contain the Wuhan pneumonia than they did with the SARS outbreak
As far as quantifying the potential impact of the coronavirus in relationship to SARS, I quickly discarded Brooking Institute findings that analysts seemed to paraphrase their views from. But my early-stage discovery, with the help of my quant, so far is pointing to this outbreak being much less impactful than the SARS epidemic. Not to suggest its in the rear-view mirror, but at this stage of the epidemic diffusion, it’s not a significant risk-off driver in my view.
This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader