What Just happened?

Plenty of head scratching and questioning what the Heck just happened.One thing for Certain once Spoos traded below the 3353-55 Band stops were triggered enmasse ,80+ thousand contracts traded during a 2 minute period on the break. Traders found out that Support levels/gaps can be broken and every once in awhile buy the dip strategy doesn’t work,Also one of the biggest high flying stocks this year(+200% YTD) Virgin galactic dropped some 30% causing quite a panic in the High flying Tech stocks,Vix Spiked some 15% traded above 17 briefly a bit of old school excitement for a bit. 10 year yields traded down to 1.51% ish a break of 1.50% is pyshological level the 1.41% September lows much more important.

Rip up Playbook

Bear with me a bit on below chart it is Gold,Dollar,Bonds and SPX,normalized as of January 1st 2020 . All moving Higher or at a minimum positive correlation as the playbook is changing.Gold 7 year highs,30 year yields approaching all time lows and Dollar moving closer to the Symbolic 100 level. Latest News is that “Key Apple Supplier Hynix Tells 800 Workers To Stay Home After Trainee Contracts Virus”(zerohedge) SOX down 1% Apple down a few dollars

Morning 2-20

Virus:
South Korea reported first Fatality as verified cases tripled within a day. As news broke South Korea’s benchmark Stock Index Kospi, dropped 1.25% giving the days gains and then some closing lower .67%


Japan’s number of Infected stands at 84 the highest number of cases outside of China, the 634 infected people aboard the quarantined diamond princess Cruise ship docked off her coast are not counted in Japan’s total. Two more deaths were reported this morning. The JPY in the process of scoring biggest two day drop in 3 Years please take notice of this as Virus /economic slowdown worries are taking hold.
Lastly China Once again changing they way it diagnoses infections, further putting in doubt the accuracy of anything coming out of China, obviously a problem,


Markets:
A bit of Risk off as Worries about the spread of virus unnerving traders so far today. Spoos down 5 handles, Nasdaq -16 handles, Dax and Stoxx 50 down as well. Gold trading higher as real rates dropping providing a reason to be long regardless of stronger dollar. Dollar moving towards 100 handles not so much due to outright dollar strength but more so due to Much weaker JPY and EUR,57% chance of June rate cut keeping the bid in treasury Complex. 30 year yields @1.97% recall 1.90% multi decade low Copper off a bit, Zinc touched multi year lows Brent higher again today +11% last 7 days as hope of production Cuts from OPEC and never-ending stimulus out of China provides a bid. Stronger Dollar not impacting some commodities please take note.


Bloomberg did not help his chances during yesterday’s Debate, a Plus for Sanders and A plus for trump reelection

JPY

The Yen set for the biggest percentage drop in 3 years,We all must take note of this. Historically a weaker yen is “risk On ” Sign as the BOJ or some other entity is trying to weaken it on purpose but today’s Move lower appears to be due to worries about a recession/Corona virus impact. Something to keep in mind moving forward as it Could be another G-8 country moving towards a recession the Question is how Long Can U.S. be immune,looks like we may find out soon

Dollar

Weekly Chart of Spot Dollar

Yesterdays Worries regarding Chips and Apple forgotten like so many other bad “news” events SOX touched all time highs today and Apple +1.6% and $3 away from all time highs

Japan

Bloomberg reporting that Corona Virus Cases have doubled in Japan to 74,and likely to move higher.With Japan’s Aging population,third oldest in the world,are worries heightened as to the impact of the virus on the Country? Japan has a tough run of late a Typhoon late last year and a Tax hike and Now Corona.

JPY almost down 1% today as Virus worries and now Economic slowdown worries weigh . from ScotiaBank ” Japan’s cap-ex picture took a turn for the worse.Machine orders fell by 12.5% m/m and thus more than consensus (-8.9%) after a temporary 18% jump in November. Since 2000, there have been only three bigger monthly declines. In year-ago terms, orders fell 3.5% y/y. This suggests further downside through revision risk to Japan’s Q4 GDP contraction of 6.3% q/q at a seasonally adjusted and annualized rate following typhoon and sales tax effects” remember These metrics are pre -Virus impact!

So Yen Collapsing and In turn Pushing dollar index to 2.5 year highs,Recall yesterday euro dropped to Multi year lows so even if the U.S. economy was struggling a bit it would be hard pressed to see dollar down for long, as the other economies struggle.If Trend Lower in Jpy continues along with Euro Downtrend the Calls that dollar is too high it is hurting exports and thus Fed has to cut rates will not be far off , As Kudlow and maybe Trump Call for Powell to act. Stronger Dollar is Not Good for a Worldwide Economic recovery.

Daily JPY futures

Morning 2-19

Hard to get the Truth out of China from IFR news


“Perhaps no more obvious in controlled coronavirus information flow, is how the WHO is operating now in China. The WHO team was only allowed in by Monday, nearly three months into the epidemic. Note the US CDC, known to be the top medical emergency teams in the world, is still not allowed in. The WHO team is quarantined in Beijing, not allowed to Hubei, with no plan to put those boots on the ground. Likely as the WHO oversees from afar, they make recommendations, that are controlled and released by China authorities”


We can discuss How many Cases there are in outside of China but that doesn’t much matter right now. Markets want to know when things will get back to normal As I have mentioned before end of February is a date that that has been circled as the beginning of the End. But if it isn’t then further downgrades to World GDP will be forthcoming. From Morgan Stanley ““Macro and micro data suggest production activities are resuming at a slow pace in China, reaching 60-80% of normal levels by end Feb and normalizing only by mid-to-late March. If the spread of the virus is not contained within the next two weeks, the disruption to production could extend into 2Q20.” That’s certainly how treasuries trade.


Chinese Government continue to provide stimulus such as Cash infusions and bailouts for airline industry rumor is that Hainan Airlines is on verge of bankruptcy and will be swallowed up by Air China. Private Companies have stopped paying wages to employees another issue that obviously can slow Consumption


Economic Data:
U.S. PPI and Housing starts Much better than expected, these are January numbers and second Tier in Importance but still very impressive, USA! USA!
Markets:
Spoos Higher Stoxx 600 new all-time highs Bunds and Bonds a bit lower, latest U.S. data pushing yields higher The JPY down .6% vs USD is a bit of a surprise