A few proxies For China Demand

SPX trading at lowest levels since Jan 6th,30 year yields dipped below 2%,lowest since September, Oil found a small bid, but quickly faded due to Russia suggesting that OPEC + Could meet in February to discuss production cuts, Trump may issue a complete travel ban to China and lastly Reports of shots fired at mar-a-lago,president is in D.C. as a car tried to breach the gates. Next week we will get Iowa Caucus,ISM ,payrolls and More Virus fall out plenty of Event risk ahead.

Now to the proxies

A Morgan Stanley EU Index of Luxury goods companies,Heavily dependent on Chinese tourist money

3 min chart of SPX airlines index self explanatory

real yields

U.S. 10 year yields – U.S. 10 year breakeven yields it is A Nominal yield minus inflation metric. Real yields can be used to measure a hand full things,but I am using it for a measure of Inflation expectations. If an Investors accepts a low real yield he or she likely realizes that inflation will continue to trend lower.real yields in obvious downtrend and until this changes Fed will be more likely to ease then raise rates


Coronavirus update: 213 deaths vs 130 yesterday. More than 12,000 suspected cases. 1,476 in serious or critical condition. ALL regions of China are reporting cases

Below information is what is driving Stocks Lower, The disruption of Business

Fourteen provinces and cities have said businesses need not start operations until at least the second week of February. They accounted for almost 69% of China’s gross domestic product in 2019, according to Bloomberg calculations. (BBG)

BBG: At Least Two-Thirds of China Economy to Stay Shut Next Week
The longer holiday is also likely to be disruptive for China’s trade, hitting both exports & imports. The 14 provinces included in the extended holiday were the source of 78% of China’s exports in December last year, according to BBG calculations. All the key eastern manufacturing provinces have extended the holiday: – Guangdong, home to the tech city of Shenzhen – Shanghai, home to China’s largest port & a new Tesla plant – Jiangsu, where Nike shoes are made – Henan, which has a large Foxconn plant making iPhones.(BBG=Bloomberg)

Chicago-based United said it would implement a second phase of flight cancellations between its hub cities in the United States and Beijing, Hong Kong and Shanghai, resulting in 332 additional roundtrips being called off through March 28. The cancellations will reduce the carrier’s daily departures for mainland China and Hong Kong to four daily departures from 12. (Reuters)

Chinese Economy being shut down for an additional week obviously not good For Global GDP .The magnitude of Impact is Unknown but as Markets like to so fear the Worse and trade accordingly. The flood of Chines tourists whom normally shop, Vist and spend money while vacationing is another dent to global GDP. Be on the Lookout for Casino, Hotel and high end retailer’s revenue warnings .Per BBG “the number of mainland Chinese going abroad rose 50% since 2014”

Amazon Earnings blew it out of water Stock +12%, Valued at over $1 trillion again stock +$200 pre cash open as one day delivery and new prime members drove the surge in earnings.

A touch of Risk Off in markets again Core PCE in Line which is a positive sign after yesterday’s Disappointing Quarterly PCE, Chicago PMI at 8:42 and Final Look at Michigan Confidence at 9:00 the Feds Vice Chair Clarida will be on Bloomberg TV at11:00 and it appears that Senate will vote as early as Tomorrow to acquit president trump .Iowa Caucus on Monday might cause a big of Angst of Bernie is clear winner. China PMi data released last night but no one cares as next months and subsequent months are what will be important

Copper down for 12 consecutive days a new record in futuility,Oil trying to stave A total collapse as OPEC threatening to call an emergency meeting,30 year yields threatened a break of 2% but failed,3m 10 year spread still negative

WHO comments

WHO chief talking out of both sides of His mouth

The main reason for this declaration of international emergency is not because of what is happening in China but because of what is happening in other countries. The WHO’s greatest concern is that the virus will spread to countries with weaker health systems who are ill-prepared to deal with it.”

Let me be clear. This declaration is not a vote of ‘no confidence’ in China. On the contrary, the WHO continues to have confidence in China’s capacity to control the outbreak.”

WHO is not recommending any restrictions on trade and travel

Almost unanimously concluded that Corona virus id Global Emergency

FOMC recap from Morgan Stanley

But First I want to say the probability for a June rate cut is 55% one week ago it stood at 18%. The Bold highlights below are What I find most important

US Economics

  • The FOMC held interest rates steady at its January meeting and, as expected, made only very small changes to the policy statement. The message from the FOMC was clear—despite some lingering and some newly emerging downside risks, the economic outlook remains in a good place and the stance of monetary policy remains appropriate.
  • Changes to the FOMC’s policy statement were few. In fact, this was one of the least changed Fed policy statements in quite some time. Nevertheless, the Committee made an important though subtle change to its characterization of the inflation outlook that acted to emphasize its commitment to getting inflation better centered around the symmetric 2% goal.
  • Despite changes to IOER and an extension of repo operations, Chair Powell made clear that he does not view the Fed’s bill purchases as a form of QE. The Chair also pushed back on the view that these purchases were having an impact on risk markets.
  • Looking forward, we continue to expect no change in monetary policy throughout 2020, with the fed funds rate remaining in a range of 1.50-1.75%. Equally as important, we view the Fed’s shift in inflation language as another move in the direction toward our view that the Fed will adopt a loose average inflation targeting framework at the conclusion of its policy framework review around the middle of this year.

US Rates & FX Strategy

  • We continue to suggest owning UST 2y and 5y notes. The Fed’s strong re-emphasis on 2% on inflation, alongside their acknowledgement of downside risks from the Coronavirus, and trade policy uncertainty, will keep the market pricing a dovish Fed. This should ultimately support front-end Treasury yields.
  • In TIPS, the outperformance of real yields to breakevens once again highlighted that the market places more weight on the Fed’s willingness to generate 2% inflation than its ability to do so. We stay neutral on TIPS real yields and breakevens.
  • Consistent with our base case, the Fed extended repo operations through April and ensured that T-bill purchases will persist into 2Q. We expect the Fed to begin tapering the size of repo operations and believe that as reserves (sans repo) comfortably grow beyond $1.5tn, the Fed will reduce monthly T-bill purchases in an attempt to taper purchases over time.


Corona Virus headlines:

  1. Coronavirus update:- 7,811 confirmed cases worldwide- 12,167 suspected cases- 170 fatalities- 1,370 in serious/critical condition- 124 treated and released- All regions of China reporting cases- 17 countries reporting cases –Mizuho
  2. US admin: appoints task force to coordinate response to the virus-Reuters
  3. China virus cases exceed 6000, more than SARS -FT
  4. Coronavirus to hit Australian GDP- Economists estimate the minimum cost to the Australian economy of the deadly global coronavirus outbreak could be up to 0.2 of a percentage point of GDP in the first quarter of this year. -AFR.com
  5. US will keep tariffs on China even if coronavirus starts hurting growth, Trump advisor Peter Navarro says-CNBC
  6. Coronavirus could spur 10% fall in global equities, says SocGen- Such a drop would represent trillions wiped off worldwide stocks
  7. https://www.ft.com/content/1529d08a-42b0-11ea-a43a-c4b328d9061c
  8. World health organization emergency Council meets today at 1:30 it may Declare an International Emergency
  9. Stocks in Taiwan, open for first day in week due to Lunar holiday closed down 5.75%, South Korean Kospi closed down 1.71% Hong Kong closed down 2.6%,NKY -1.72%, off shore Yuan moved above $7 for first time this year

  10. Earnings:
    Facebook Ugly earning stock -7% as I type,MSFT And Tesla very Strong Latter +7% MSFT +2% yesterday Spoos could withstand the Corona virus worries due to better earnings, today they are struggling to accomplish this feat I believe due to FB.
    Bonds bid everything is bullish for bonds yesterdays Fed statement regarding inflation,Coronoa virus, Short positions being squeezed 3m 10 year yield inverted 10 year yields headed towards the September lows 30 year yields trading 2.01% ..

  11. Econ Data”
    Today’s GDP is likely to miss Expectations due to slowdown in consumer spending, less Boeing orders. Many U.S. Companies are shutting down business in China until they get the all clear from Chinese officials Such as Google, Starbuck, McDonald’s and Yum brands. We now all airlines are canceling flights to and from China so thus Demand destruction for jet fuel and Thus oil which is down 2% for CL. Copper headed for longest daily losing streak ever, if it closed lower on the day for 11th consecutive day.