A few things from Mizuho…

The “January Effect” states, “As goes January, so goes the year”. To be specific, since 1946, when the S&P 500 in January is: 1) Positive, rest of the year, SPX is up 11.1%, and 2) Negative, rest of the year, SPX is up 1.3%. The S&P 500 index was down 0.16% in January this year.

◘ The US high-yield bond ETF that trades as JNK just recorded its biggest weekly withdrawal in almost two years, of $1.1 billion. While junk bonds are supported by lower rates, they’re getting hit by both fears of a coronavirus-induced economic slowdown and lower oil prices.

Expectations for a stronger Euro have hit highest since January 2018. Three-month 25-delta risk reversals for the euro-dollar have risen to the highest since January 2018, according to data compiled by Bloomberg. Chinese oil demand has dropped by about three million barrels a day, or 20% of total consumption, as the coronavirus squeezes the economy: Bloomberg sources.

◘ Whatever it takes redux. There’s going to be another huge wave of global liquidity, this time coming out of China. And that’s been the genesis for stock market rallies since the GFC. If it doesn’t work right away, it will be followed by another, and another… The People’s Bank of China added a net 150 billion yuan ($21.4 billion) of funds on Monday using 7-day and 14-day reverse repurchase agreements. The total injection announced was 1.2 trillion yuan, the largest single-day addition of its kind in data going back to 2004. However, the net effect is much lower as more than 1 trillion yuan of short-term funds matured today.

◘ Back from holiday. Shanghai Composite closed 7.7% down at 2746. Shenzhen Component and Chinext closed 8.5% and 6.9% lower. All but 162 of the ~4,000 stocks in Shanghai and Shenzhen indices fell today, with about 90% falling by the maximum limit (-10%). All those stocks trading limit down means it could take days for investors to execute their orders, prolonging the sell-off. After markets closed, the central bank affiliated Financial News published a commentary saying “the sell-off in the stock markets is caused by many irrational factors, or even a panic triggered by ‘herd effects.’” The impact from the epidemic is “temporary” and “limited” and the first quarter’s contribution to full-year growth is normally small, according to the article.

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