INSIGHTS

Stefano Sciacca

Fri, Feb 7


Rely on fixed-income, avoid stocks for now

The uncertainty around any positive development on a potential Coronavirus slowdown or vaccine persists, and the equity markets have more than discounted the likelihood of major consequences on the real economy. The S&P 500 has touched its historical highest level and closed at 3345 with it being 4 percent up on the year-to-date. Pharmaceuticals, for obvious reasons, and defensive sectors in general have been the ones that showed more resilience during the nCov outbreak crisis and have been seen to outperform.

 

Industries that have been highly exposed to China, such as semi-conductors and automotive, have continued to struggle. That said, Tesla suddenly gained more than 60% over the past 6 trading days as optimism about the electric automaker spiked. However, Tesla announced the virus issue will largely impact their delivery projections in China (stock edged down 7 percent). Consider Tesla currently has a market capitalization of a fraction of Ford/General Motors, whilst it is 43% higher than the gigantic VW (10million deliveries in 2019 vs 500K projected by TSLA).

 

 

In the meantime, US Government securities have lowered in yield as sentiment around a potential global health emergency escalated. The Treasuries are still highly bid, although the stock market has more than recovered the slight price correction, meaning that active investors continue to be cautious on the matter. On the same vein, Gold has pulled back, following the stock market, and is still perceived as “good buy” in case of bad news from the WHO. Crucial events in the spotlight will be US-China trade negotiations and the situation in Iran.

 

To conclude, the stocks rally has also been fuelled by the Chinese government deciding to halve from 5% to 10% the tariff on more than 1700 goods imported from the US. On the other hand, the Asian government refused any help from the US on finding a cure for nCOV.  

 

 

Next week our macro spotlight will be on?

 

Monday:

  • Inflation Rate - China

 

Tuesday:

  • GDP Growth – UK
  • Unemployment Rate - UK

 

Wednesday:

  • Industrial Production - Eurozone

 

Thursday:

  • Inflation Rate – Ger
  • Inflation Rate - US

 

Friday:

  • GDP Growth – Ger
  • GDP Growth – Eurozone
  • Retail Sales – US
  • Industrial Production – US
  • Manufacturing Production – US
  • Michigan Consumer Sentiment – US

 

Chart of the week

  

 

Fact of the week

The Fed is conducting research and experimentation related to distributed ledger technologies and their potential use case for digital currencies, including the potential for a CBDC.

 

Quote of the week

"Coronavirus will have a larger negative effect on the global economy than the SARS outbreak"

IHS Markit


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