The UK formally leaves the European Union

February 03, 2020

Brexit ?UK ?EU

A big week ahead that kicks off with the Iowa caucus where both Democratic and Republican party members will vote for their preferred candidates in the presidential election on 3 November. Clearly, the Democratic caucus provides the greater nail-biting potential. An average of polls as of 28 January showed Bernie Sanders at 22.7%, Joe Biden at 22.1%, Pete Buttigieg at 16.6% and Elizabeth Warren at 13.6%. Since 1980, the final presidential candidates have won either Iowa and/or New Hampshire – the latter votes on 11 February.

Central banks will be very active this week, including those of Australia, Thailand, Brazil, Poland, the Philippines, the Czech Republic, and Russia. Australia and Brazil are expected to deliver rate cuts, while Thailand seems set to hike.

On the data front, the US non-farm payrolls has the most market-moving potential. The net new job creation is expected at 153’000 after 145’000 in December. The unemployment rate should remain unchanged at 3.5%.

A slew of PMI data will be released and the Chinese numbers in particular could have market impact. However, it is doubtful that the effect of the coronavirus will show up in these numbers.

It is impossible to know at this stage what the full impact of the coronavirus might be on the Chinese and world economies.

Hence, bottom-fishing at this stage seems wildly premature. Nevertheless, chances are that it might not exert a drag on growth beyond the first quarter in which case activity could recuperate the Q1 loss over the following quarters, possibly leaving full year activity intact. Wuhan, the virus’ epicentre, is the number 1 among major cities in central China, and 8th among the 100 largest cities in China, and its economy generates around 1.5% of China’s GDP (2015).

About 30% of S&P 500 companies have reported their quarterly results, 72.8% have beaten analyst expectations and so far reported positive earnings growth for the quarter of around 2%.

Some companies such as Apple have however taken the opportunity given by their earnings call to highlight their concerns about the potential effect that the coronavirus could have on their Q1 results.

From an FX perspective, the Australian dollar has further weakened from already low level while the CHF has strenghtened and it may provide an opportunity to Sell AUD Put CHF Call.

February 03, 2020

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