Equity markets continue to be unstoppable, yesterday we moved back to the pro growth tilt with cyclicals leading gains in Europe.
Yesterday was probably the quietest day of virus related news flow since this saga began. The consensus seems to be, the sooner China can resume business as usual, the sooner there can be more monetary and fiscal easing.
Today is completely another story as the overall death toll from the virus jumped to more than 1300, while the total number of infections jumped by 15k to a scaring 60k in China only. Some further high-profile government executives were sacked in Hubei, China, as they suppressed information about the severity of the crisis.
As we said several times, we reckon the numbers of infections are much higher than those officially confirmed. China Health Commission changed method to account for infections, including cases that were confirmed via imaging scans, increasing the number of detections by 45% in Hubei. We are seeing new infections in several countries worldwide such US, Japan etc. We are also seeing important fairs cancelled, such as the Mobile World Congress in Spain, and Countries such as Hong Kong, delaying the opening of the schools for an extra month. Also not surprisingly, China January car sales fell 20% YoY.
The result is that Asian markets were weaker and European & US futures are down 0.2% and 0.4% respectively.
Yesterday was a very interesting day indeed with the Eurostoxx 50 index today finally surpassing 2015 levels and now trading at the highest intraday level since 2008.
Of course, bond investors remain hungry for yield above 1%, also taking into consideration that Greek bond yield fell below 1% for the first time ever. On Tuesday, the Italian Government sold $10 billion of 15-year govies via a syndication of five banks, recording a monster demand, much more than $60 billion.
The ”buy everything” trade that has worked last year is continuing even in 2020 with MAGA (Microsoft, Apple, Google and Amazon) reaching 8.5% of the World Global public equities vs 2.5% in 2011.
Yesterday was also the 1st day Ytd where we have seen an outperformance of the sectors that have been heavily penalized by the virus outbreak: Auto, Basic Resources and Oils. Technically is worth to note that the Crude oil price seems now above some big short term trend lines that have been in place since January. 51 is key resistance to watch for a reversal.
With a great timing, OPEC+ slashed its forecast for global oil demand by 230k barrel per day to just 1 million barrels per day following the Chinese lockdown, which is forecast to cost a lot to the Global and Chinese oil industry, revised down respectively by 400k and 200k barrels per day in H1. Without any doubt, if OPEC+ doesn’t cut there will be a supply glut, being the market not currently balanced. In the previous week, OPEC+ already suggested its allies a coordinated cut of 600k barrels per day, despite some resistance from Russia which is due to communicate its decision in a short run. Oil jumped more than 3% yesterday on speculation to further cuts. Interestingly to note, current global oil demand (although revised down several times) is higher than 2019 (chart).
Global Oil Demand
China (red) vs US (green)
After New Hampshire’s contest, Sanders is forecast to be the leading Democrats candidate for US presidential election (chart). Nevada caucuses are scheduled on February 22 while Super Tuesday (when the largest number of states and territories hold a presidential preference primary or caucus) will be held on March 3.
Sanders consensus (green)
However, Trump consensus is flying, lifting the market as well. The correlation is staggering. Remember Sanders might be the next black swan, but his likelihood of success are getting lower and lower and that is another positive point for the current market.
Republican consensus (red) vs S&P500 index (green)
As far as Macro is concerned, we saw a tough batch of data yesterday. In Europe, December Euro-area Industrial production came lower than expectation at -2.1% vs previous positive growth of 0.2% MoM, the steepest drop in almost four years, and at -4.1% vs -2.5% YoY, showing signs that the manufacturing crisis is definitely not over yet.
Euro-area Industrial production
Europe: January Germany Inflation CPI
US: January Inflation CPI, Jobless Claim, Consumer Confidence
Important also to note the exploding volumes on single stock options in 2020.
Single stock options volumes (notional value) have reached an all-time high since the start of the year. The recent growth is driven by a handful of underliers including TSLA, AMZN, AAPL, GOOGL, MSFT, DIS and IBM
The chart below (from Goldman) show the single stock options notional volumes as a percentage of shares notional have risen to 91% well above previous highs..
A final technical note on the Italian Ftsemib Index which is currently breaking the multi-year resistance at 24,558/576 stretching back to 2009 and 38.2% Fibonacci retracement of the entire 2007/2012 bear market.