Contagion effect Overnight Highlights Need to Know - Kennedy Partners
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Wednesday, 12 February 2020
Overnight Markets Overnight Highlights
Need to Know
Contagion effect
More walls are going up. Trade wars, technology
protectionism and Brexit-type barriers have knocked
worldwide integration over the last few years. As the
coronavirus from China spreads, it will give countries and
companies fresh reasons to rethink the merits of cross-
border commerce and supply chains.
Restricting movement may help contain the virus that had
killed 213 people as of Friday, infected nearly 10,000 and
led the World Health Organization to declare a global
health emergency. With Chinese people expected to take
over 160 million trips abroad this year, it’s no wonder that
other regions are strictly curbing inbound visitors from the
People’s Republic. The likes of HSBC and LG Electronics
are also clamping down, banning travel to China. British
Airways is one airline suspending flights to and from the
country.
Some concern is warranted. Starbucks, which has been
counting on growth in China, this week warned of a
financial hit from the virus as it temporarily closed
thousands of locations. Yangtze Optical Fiber and Cable,
based in Wuhan, where the virus originated, accounts for
55% of global production by volume of an essential
material for 5G telecom service, according to TS Lombard
economists. A shortage is bound to push prices up.
GLOBAL MARKET
Global Equities. Global stocks struggle for footing after
fraught week. Asia halted 6d losing streak following pos
handover from Wall St. US shares bounced back from
initial coronavirus-induced selloff w/earnings providing
relief. Bonds drop w/US 10y at 1.59%. Gold drops to
$1572, Bitcoin 9.4k.
The Baltic Dry Index, is reported around the world
as a proxy for dry bulk shipping stocks as well as a
general shipping market bellwether, has fallen to its
lowest level since 2016.
S&P500 has ended Jan 0.2% lower while Fed balance sheet has
shrunk by $14bn or 0.3% in Jan.
Price of 100y Austria bond has bounced back
heavily. Gained 20% Ytd. Chart looks like a crazy
tech stock.
A $22bn injection into Chinese markets won’t be enough
to prevent the country’s stocks and currency falling on
Monday, but it may ease a global sell-off sparked by the
spread of the coronavirus.
The share price of Kawamoto, the Japanese
manufacturer of facemasks, is up 750%(!) year-to-date.
ASX MARKET Aust Dec credit growth remained soft at
0.2%mom/2.4%yoy but housing credit momentum
ASX to open lower, as global investors rushed looks to be bottoming esp. for owner occupiers with
to the sidelines over the weekend, wary of being caught flow of new housing debt looking like it’s starting to
unable to trade if the coronavirus outbreak intensifies. offset paydown of existing debt. Still soft though.
ASX futures were down 119 points or 1.71 per cent to (Bloomberg table, Macquarie chart)
6835. The Australian dollar sank 0.4 per cent to
US66.93¢; it's now shed near 5 per cent against the
greenback this year.
Aust Jan AIG manufacturing PMI -2.9pts to 45.4,
lowest since 2015 with respondents citing
bushfire impacts. Supports case for more policy
stimulus. (Goldman Sachs chart)
a bigger impact from the travel ban will come if
Aust education exports are hit (Aust ed exports to
China are around 0.6% of GDP) which would occur
if the travel ban into Aust from Ch is for a long
period-which takes us back to how long it will take
to contain Coronavirus (Goldmans chart)
NEED TO KNOW:
You’re not a celebrity but your Some News:
There are 4 types of people in this world. Those that:
handbag can be… 1) won’t ever think to wear anti-viral masks (buy and hold)
WSJ – 29/01/2020
2) bought anti-viral masks weeks ago (value)
3) will now pay $100 for a set on eBay (growth)
4) bought anti-viral masks weeks ago to sell on eBay
(private equity)
LVMH Moët Hennessy Louis Vuitton, the luxury-goods
giant owned by the world’s second-wealthiest man, Bank of England has kept rates unchanged. It is paying
Bernard Arnault, said late Tuesday that revenue more attention to the forward-looking indicators than it is
increased by 8% in the three months through December the hard data from the past, which is why the committee
after stripping out the impact of exchange-rate moves voted 7-2 – as it did at its last meeting – to keep interest
and portfolio changes. The quarterly growth rate was rates unchanged.
LVMH’s slowest since late 2016.
As one of the first companies in the luxury business to
report this quarterly earnings season, LVMH’s results
will be scrutinized for any slowdown in spending by
wealthy Chinese shoppers who now buy one-third of all
such goods globally. So far, demand for designer
handbags and clothing hasn’t been impacted by slower
economic growth in China or by political protests in Hong
Kong. According to CitiGroup --- Buy the Corona Dip.
That should reassure investors worried that the luxury- SARS experience suggests equities, especially in Asia, will
goods sector’s three-year winning streak might be keep falling until coronavirus infections stabilize. Cyclical
coming to an end. LVMH’s sales in Japan fell by 4% in the sectors are most vulnerable. Although Tobias Levkovich’s
fourth quarter from the year-ago period, but this was Panic/Euphoria indicator flags short-term caution, our
due to an increase to value-added tax that incentivized global Bear Market Checklist (5/18 red flags) still wants to
shoppers to make their purchases in the third quarter buy this dip. Our strategy team are currently targeting a
before the new levy came into effect. 4% gain in global equities in 2020, in line with EPS growth.
The luxury sector’s spectacular rally will eventually Any further drop in global equities would make forecast
come to an end, but LVMH hasn’t been the one to break returns more attractive (Report Ref: Coronavirus: Buy This
the spell for now. Dip by Robert Buckland published 30-Jan-20)
IMAGES OF THE DAY: Pictures of construction workers sleeping on-site at Huoshenshan Hospital. From nothing to being able to receive patients, the makeshift hospital for coronavirus patients in Wuhan completed on Sunday within only 10 days! Salute to the hardworking people behind this miracle!
Australia has gone 28 years without a recession. The longest run in the developed world belongs to Japan, from 1960 to 1993.
The divide between Central Park and buildings in New York City.
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