EU MORNING: Coronavirus Optimism Steps Higher

It's evident the market is becoming more and more bifurcated in terms of how it views the developing Coronavirus situation both within China and surrounding regions. On one hand, confirmed cases have aggressively risen to 28,233 and the number of deaths are set to surpass SARS 2003 levels in a couple of days. Mix that in with cruise ships facing quarantine en masse, multinationals continuing to warn of H1 earnings disruptions, and a raft of travel bans remaining prevalent, and all of it sudden, it looks gloomy by all accounts.
 

On the other hand, major equity benchmarks in S&P 500 and Nasdaq futures have comfortably rallied to all-time highs clearly disinterested in the spread of the virus, while regional Asia has exhibited high beta sensitivity - benefitting most from the broad risk rally. Hang Seng futures, at time of writing, have surged 1.95%. Though news that China will make additional cuts to tariffs on some imported goods will have certainly helped. Kospi, PSI and Taiex were noticeable gainers in the performance charts. Nikkei outperformed maintaining its negative correlation to USDJPY strength.
 

Walking into Europe, expect price action to follow healthy Asia risk appetite, reinforcing the markets' fleeting memory around Coronavirus and story of US exceptionalism. According to futures, equities eye a positive start with FTSE poised to jump some 50pts, while DAX looks to quickly summit back to January peaks.

Risk is broadly in for a lighter session with not much high-impact data dotted in the calendar, although a speech from ECB President Lagarde remarking on monetary policy in Brussels presents traders with soundbite volatility. EURUSD has underperformed the broader risk rally, edging into multi-month lows overnight. While GBPUSD continues to stay range-bound waiting on Brexit's developing status.

Of focus on the corporate calendar up ahead, markets catch France-based cosmetics company, L'Oreal (OREP.PA), owner of world renowned brands like Maybelline, Garnier and YSL. As this is yet another multinational with high exposure to China, having generated some 27% of revenues from Asia-pacific last FY; investors will want to know how big the Coronavirus sting is for earnings in H1 2020.

Mean EPS: EUR3.38m
Mean Revenue: EUR14,778m
 

Tesla chop

Following up on our Tesla coverage yesterday, volatility in the incumbent electric car maker continues to rise with another big swing in trading. The share price is down 17% at time of writing, keeping around $740 levels. This is a huge difference to last night's highs of $970 and could be a significant turning point for what's arguably been a hype rally, backed by retail with little institutional support. As most mania stories go, smart money takes advantage of overextended moves at the peak and rotates, while retail money still piles in at the peak before a capitulation back to lower levels, especially as more and more latecomers bottleneck the exit door. 


Source: data from Reuters, ThinkMarkets

As mentioned in our Asia Morning, there likely wasn't going to be too much fuss about Aussie retail sales and it's exactly played out as such. Retail sales came in below expectations (-0.5% vs -0.2%), but Q4 retail trade saw improvement of 0.5% against 0.3% estimates.

The overall result keeps the RBA holding for now, with the yield curve creeping higher right out till 2020 end. It goes to show how quickly markets can move going from two full rate-cuts being priced into the curve at the start of the year, to not even one. AUDUSD chopped around but finishes higher, while AUD continues to exhibit relative outperformance against NZD.


Source: Eikon 
 

SGD markedly eschewed the risk rally, weakening further against the dollar in Asia trading. The currency edges closer towards 1.395 resistance (2019 highs) and could find easier buyers at those levels. Although, MAS guidance suggesting there's "sufficient room... to accommodate easing" will continue to weigh on the minds of investors.


 

Across the South China sea, a major decision lies ahead for Philippines' central bank BSP. Consensus expectations are geared for a 25bps rate cut, but there are chances it could shift to March. Growth in the nation seems to be on the improve with infrastructure spending set to ramp up after last year's budget delays. Though, negative demand impacts (still waiting to be assessed) driven by the Taal volcanic eruption and Coronavirus should be duly considered. PHP has been understandably mellow waiting on the 4pm Manilla time decision.