Chinese Coronavirus fuels risk-off

Last week’s trading was interesting for a variety of reasons. Though markets managed to hold onto their “confirmed uptrend” status, they closed out the week on a soft note. Much of the weakness in pricing that emerged last week was fueled by growing concern over the Chinese coronavirus, as a second confirmed case was announced by the Center for Disease Control here in the United States.

That concern triggered a risk-off trade on Friday that took over 300 points off the Dow Industrials.

The markets did recover some of their intraday losses by the close, but still managed to give meaningful ground, and in the process, set the tone for additional pricing weakness as we head into this trading week.

Interestingly, the impeachment trial of President Donald J. Trump has fueled little concern on the part of investors. That is likely because the outcome of the trial in the Senate is largely a forgone conclusion. Even television viewership of the proceeding has been noteworthy for its low ratings. The Nasdaq lost 87 points, or .93% on Friday. The S&P 500 lost 30 points, or .90%, while the Dow Industrials lost 170 points, or .58%. Volume on the Nasdaq rose 11.28%, and slumped on the NYSE by .57%. Had it not been for Intel’s gain of 8% on Friday, the Dow and Nasdaq would likely have suffered more meaningful losses.

Last week’s abbreviated economic calendar highlights and results:

Existing Home Sales for December 2019 were strong—particularly relative to the previous month’s results. Coming in at 5.54 M, December’s results were nearly 200 K above November’s reading.

Weekly jobless claims were modestly better-than-expected, coming in at 211 K. The prior week’s figures were revised up to 205 K from 204 K. The four-week moving average remains reflective of a very healthy job market.

The top-line PMI Composite Flash reading for January (53.1) was stronger-than-expected. Manufacturing was 51.7, while services were 53.2.

This week’s earnings calendar is littered with large-cap favorites: Apple, Amazon, and Tesla.

This week’s economic calendar highlights:

Though the highlights for this week’s economic calendar below do not single out manufacturing as a theme, it is important to keep in mind that this week will have a decidedly manufacturing-centric focus. On Monday we receive the Dallas Fed Mfg. Survey. Tuesday, the Richmond Fed Manufacturing Index is released. And though not purely a manufacturing gauge, the Survey of Business Uncertainty should shed some light on the space. Finally, on Friday the Chicago PMI data is released by the Institute For Supply Management. Both manufacturing and non-manufacturing data are included in the survey.

New home sales figures for December 2019 are released on Monday morning. Econoday consensus is 728 K—up from November’s reading of 719 K.

Durable goods orders for December 2019 are released on Tuesday morning. Though November’s figures were a bit disappointing, December’s durables numbers are expected to revert to a positive reading. New orders M/M are expected to be 0.5%. Ex-Transportation are also expected to tick higher from November’s flat reading to 0.2%. Core capital goods M/M are expected to be 0.2%. Consumer confidence in January, as measured by the Conference Board, is expected to remain very encouraging. Econoday consensus is 127.8—up fractionally from December’s 126.5 reading. Consumer confidence, not unlike consumer sentiment, remains at cycle highs.

International trade in goods data for December 2019 is released at 8:30 AM. Econoday consensus is $-66.9 B. It is significant that November’s international trade in goods data reflected a gain of exports by 0.7%, and a drop in imports by 1.3%. As a component of the complete trade picture, the goods vertical is always the largest factor/contributor to the monthly deficit. Services tend to, in part, offset the deficit consistently posted by goods. The EIA Petroleum Status Report for the week ending 1/24 is released. Last week’s report reflected a relative equilibrium between supply and demand with little change in inventories across all three verticals. The first FOMC meeting of the year is set for this week. The meeting begins, as is customary, on Tuesday morning, with the meeting announcement, and Chair press conference slated for the afternoon on Wednesday. Markets are not pricing in any shift in policy in the near term, and do expect a reference to geopolitical themes that have the potential of driving fear into markets. Specifically, I would expect a reference to the health crisis emerging in China and potentially spreading well beyond its borders. On the economic front, mention of the continued sustainable nature of our US economic expansion.

The Gross Domestic Product (GDP) figure for Q4 (a) is released Thursday morning. The prior reading was 2.1%. Econoday consensus is 2.1%. Many will be keeping a close eye on the real consumer spending vertical within the report. The prior reading was a very elevated 3.2%. Econoday is calling for a more sober 1.9% in this report. Weekly jobless claims are due out Thursday morning as well. The four-week moving average (213.25 K) continues to reflect a tight job market.

Personal income and outlays data for December are released Friday morning. Econoday consensus remains very constructive. Income M/M is 0.3%, spending is 0.3%, and core prices are expected to remain well below 2.0%. Y/Y consensus is 1.7%.

Flickr photo: US Mission Geneva
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