Main Themes: Concerns mounted over a new virus spreading in China. Economic data was mostly positive, including a rebound in jobs creation in the UK and a bounce in analyst confidence in Germany.
Share Markets: Equities fell from their recent highs amid fears of contagion from the deadly coronavirus. Transport stocks were especially affected. The Dow Jones, is down 0.4% (Boeing, which is a major constituent, fell 3.4%) while the S&P 500 fell 0.2%.
Asian equity bourses felt the brunt of the impact in trading yesterday, including a 1.7% fall in the Shenzhen CSI 300 index. As a major transport hub, Hong Kong was heavily affected during the SARS outbreak in 2003. Yesterday the Hang Seng index fell 2.8%. The ASX 200 fell 0.2%, but still managed to close above 7,000, finishing the session at 7,066.35.
European markets were also weighed down by negative sentiment around the virus, however a survey showing a bounce in German analyst confidence erased some of those losses. The DAX rose 0.05% while the Euro Stoxx 50 fell 0.3%.
Interest Rates: Yields fell as investors repositioned towards risk-off. The US 10-year treasury yield fell 6 basis points to 1.77% while the 2-year fell 4 basis points to 1.53%.
Australian yields were also lower, although to a lesser extent. The 10-year bond shed 2 basis points and is now 1.16% while the 3-year bond is 1 basis point lower at 0.73%.
Foreign Exchange: Safe-haven currencies rose (the US dollar fell 0.33% against the yen) while the yuan weakened (the US dollar rose 0.6% against yuan traded offshore). Overall, the US dollar index was marginally lower at 97.565, after recovering from intra-session lows. The pound rose 0.3% after a better-than-expected labour market report for November.
The Australian dollar was heavily buffeted by concerns over the spread of the new virus, down 0.4% against the US dollar to 0.6846, its lowest of 2020 so far.
Commodities: Oil prices returned to relative calm, despite the ongoing crisis in Libya. Growing global supplies, including from the US, allayed concerns that a halt in Libyan exports would crunch supply. A report from the Energy Information Administration (EIA) showed that US oil output is set to rise to a record 9.2 million barrels per day in February. WTI futures prices fell 0.3% to US$58.34.
Australia: There was no major data released Tuesday.
New Zealand: The performance of services index fell to 51.9 in December. Although still in expansion territory, it was the weakest outturn since 2012. It injects a note of caution around the economic outlook, where the picture has otherwise been tentatively improving.
China: The number of casualties due to the new coronavirus has risen to six, with eight more cases confirmed in Guangdong and Beijing. The World Health Organization confirmed that the pneumonia-like illness can be transmitted between humans. Cases have also been confirmed in the US and Australia.
Europe: German investor confidence rose to a four-year high, according to the January reading of the ZEW index of expectations. The index rose to 26.7 in January.
United Kingdom: After a lacklustre retail sales report for November, labour market data surprised to the upside with 208,000 jobs added in the three months to November. The jobless rate remained at 3.8% while average earnings growth held steady at 3.2%.
United States: US President Donald Trump struck an upbeat tone on the US economy in his address at Davos. He dismissed climate change concerns and touted his latest trade deals with China and Mexico in a wide-ranging speech. Meanwhile, his trial began in Washington. Markets have been relatively sanguine about the trial, given that the Republican-dominated senate would still need to pass the impeachment if it did proceed.
Today's key data and events:
AU Westpac Consumer Confidence Index Jan prev 95.1 (10.30am)
AU Skilled Vacancies Dec prev -1.3% (11am)
JN Department Store Sales Dec prev -6.0% (4.30pm)
UK PSNB ex Banks Dec exp £5.3bn prev £5.6bn (8.30pm)
US Chicago Fed Nat Activity Index Dec exp 0.15 prev 0.56 (12.30am)
US FHFA House Price Index Nov exp 0.3% prev 0.2% (1am)
US Existing Home Sales Dec exp $5.43m prev $5.35m (2am)
Times are AEST. All data forecasts are m/m or q/q and seasonally adjusted unless otherwise specified. Forecasts for Australian data are our forecasts and for other countries they are consensus forecasts.
Nelson Aston, Economist Ph: 02-8254-1316