Morning 2-26

Risk Bouncing a bit today Spoos and Nasdaq trading in the Green, Bonds heavy and Gold Lower again . South Korea’s Kospi Closed down 1.2%,but the MIB +1% A good sign. German Gov’t will suspend Budget restrictions to provide Financial help to States that are struggling should be a negative for bunds.

Fear of Coronoa Virus spreading and its Impact on everyday life has caused buy the Dip mentality to turn into sell every pop. Could things be Different if markets weren’t at all-time highs? A few facts from Mizuho. “Hedge funds piled into leveraged longs right before this selloff in stocks. “Net leverage, a measure of industry risk appetite that considers long versus short positions, rose by about 5 percentage points, one of the fastest expansions in years, according to data compiled by Morgan Stanley’s prime brokerage unit. At Goldman Sachs Group Inc., clients have also ramped up their leverage after holding it steady since late 2019. At 48.4% on Thursday, the ratio stood at the 95th percentile over the past year, the firm’s data showed.” Sometimes markets just need a nudge or an event to cause the longs to turn tail and run for cover, I’m not saying Stocks wouldn’t have collapsed under weight on corona Virus but maybe loses would not be as extreme if everyone and there brother was not long.Speaking of Overloaded Longs “the long position in U.S. gold futures and options by money managers and other large speculators surged 22% in the week ended Feb. 18 to the largest in records going back to 2006, according to Commodity Futures Trading Commission data released Friday” Gold not following the playbook last few days as I it has been dropping along with spoos two things beh9ing fall One the Bank of International Settlement, The Central bank of Central Banks put out a note saying they are allowed to Sell gold and Rumblings that profitable positions needed to be sold to Cover The losses from losing positions AKA Long Risk.

Negative Virus headlines:
Iran now has the highest coronavirus death toll outside of China, threatening the wider Middle East- Iran’s health ministry on Tuesday confirmed 15 deaths from the new coronavirus amid 95 cases in Iran, the most fatalities of any country outside of China.
South Korea reports 169 new coronavirus cases, pushing total to 1,146: KCDC- South Korea reported 169 new coronavirus cases on Wednesday, pushing the total tally to 1,146, Korea Centers for Disease Control & Prevention (KCDC) said

US soldier based in South Korea tested positive for coronavirus- First US service member to have tested positive (forex live)

Japanese PM Abe: Will ask for cancellation, delay or downsizing of sports & cultural events for the next 2 weeks (BBG)

4 new cases confirmed in the Diamond Princess cruise ship, raising the total to 705 cases inside the ship (BNO news)

Iran Death total now stands at 19 the largest outside of China both South Korea and Italy’s Toll Stands at 12, South Koreas saw an Increase in Case of 284 Italy 51 and Iran 44 over last 24 hours.

Positive News:
Things continue to show improvement in Mainland China

CDC Comments providing more angst

“Disruption to everyday life might be severe,” says DrNancyM_CDC.

U.S. CDC: “We can have community spread in the United States and have it be reasonably mild, we can have community spread in the U.S. and have it be very severe. So that’s what we don’t completely know yet

U.S. CDC: “We’re asking folks in every sector, as well as people within their families, to start planning for this, because as we’ve seen from the recent countries that have had community spread, when it hit in those countries, it has moved quite rapidly”

Worldwide stories Regarding Virus:

An Italian official has confirmed three further people have died in the coronavirus outbreak in northern Italy bringing the total number of deaths in the country to ten

UPDATE: Italy reports another death from coronavirus, raising country’s death toll to 11 – ANSA…

Swiss authorities will publish the test results of 70 people in the coming hours

No turnaround Tuesday

More Announcements of new cases in Spain,Italy,Iran and Switzerland. bank of France Chief suggest bank likely to revise lower 2020 GDP forecast.WHO representative said ” Virus is a rapidly spreading Epidemic” not using pandemic yet.President trump Announced $2.5B to fight Virus,Most believe this number is too low. A central theme running through twiiter today is that Central bank rate cuts dont create a vaccine or get people to travel to infected areas.

U.S. 10 year yield 1 bps away from all time lows,Dow -250,Spoos -30 handles the negative headlines do not stop as Goldman Sachs and Deutsche bank restricting travel of Employees to Italy , South Korea and parts of Asia and Australia

China Update Morgan Stanley

Slowly getting back to normal, Worries outside of China the bigger concern

Daily power coal consumption of the six major power generation groups was down by 2.6% DoD, reaching 58% of pre-Lunar New Year (LNY) levels, well below ~90% at this point during normal years. On an actual YoY basis (i.e., same date), growth edged down to -37% on Feb 24 (vs. -36% on Feb 23 and -15% YTD).

“Return to work” traffic improving steadily: Passenger traffic rose to 15.4mn on Feb 24, with DoD growth accelerating to 4% from the average of 2.6% over the past week, suggesting improving return-to-work traffic. Among people who left tier-1 and tier -2 cities during the two weeks before LNY, 47% have returned (vs. 45% and 44% on Feb 23). In the first day of week 3, intra-city traffic congestion narrowed its YoY decline compared with workdays in similar periods last year, to -27% (vs. avg. of -30% post Feb 9).

More provinces adjusted down emergency response levels: The Politburo classified all regions into low-risk, medium-risk and high-risk categories, urging for full and orderly production resumption in low-risk and medium-risk regions. Over the past 24 hours, three more provinces – Jiangsu, Guangxi, and Guizhou – have lowered their level of Emergency Response Mechanism from level I (highest and most restrictive) to Level II & III, which means less restriction on production resumption and traffic normalization. Currently, provinces that have de-escalated account for 33% of national GDP.

City-specific property easing on the demand side: The China Zheshang Bank lowered the mortgage down payment ratio for first-time home buyers from 30% to 20% in cities that do not have house purchase restrictions, marking the first commercial bank to take up such measure. That said, we believe this only indicates some city-specific easing, as the PBoC’s 4Q Monetary Policy Implementation report reiterated “houses are for living not speculating”, and the PBoC deputy governor said on Feb 23 that mortgage interest rates would remain at current levels despite the recent LPR cut.

Morning 2-25

China Appears to be turning the proverbial Corner as workers return to their jobs…
(Reuters) – As many parts of China ease coronavirus travel curbs, main manufacturing hubs in the east and south are seeing hundreds of thousands of migrant workers returning to work and more traffic on the roads during rush hours.

Mainland China reported nine new coronavirus cases outside the epicenter of Hubei on Monday, the lowest since the national health authority started publishing nationwide daily figures on Jan. 20.Several provinces have lowered their coronavirus emergency response measures, allowing more flexibility on transportation and helping firms resume production

…Too bad the market’s focus is on places outside of China

that an Italian tourist traveling from the infected Lombardy region in northern Italy to Tenerife (Canary Islands Spain) was confirmed to have been infected with the coronavirus. As a result, 1000 fellow tourists at the hotel where he is staying have been quarantined (Reuters)
Bloomberg published Monday showed that of the six places with the fastest growing case counts, four are outside China — South Korea, the Diamond Princess cruise, Italy, and Japan

S Korea have raised their warning level to 3 (highest level) adding the outbreak is widespread & ongoing; 144 more virus cases reported, total now stands at 893; 11 deaths reported; gvt to implement containment policy in Daegu & Cheongo (Reuters)

Iranian Deaths increase by 3 totals is Now 15, highest number outside of China. Iranian Health official was diagnosed with the Virus

The Question in the Markets eyes is when will the Spread stop the longer we go with no containment the more the markets will feel uneasy. The Economic Impact of the Virus is starting to Show up in more Companies outlook United airlines abandoned profit outlook and MasterCard Cuts its forecast all due to impact of Covid-19(BBG). A recent survey showed that Luxury item sales could drop by $44 Billion as Chinese Shoppers stay away, this will have a bigger impact on European stocks then U.S.

A bit Of Bounce overnight in Stocks lets look at the hotspots as a proxy for overnight sentiment SK Kospi closed 1.18% higher, Italy’s Mib unchanged as I type but the Index has fluctuated between gains and Loses so far today. Gold trading down .5% but it has been all over the map up down sideways overnight, Treasury Yields Unchanged to higher, Spoos +12 handles, Nasdaq +.7% let’s see if the bounce is for real or a tape bomb knock it off track. A couple of Drug Companies working on a treatment, Gilead Science is the one being talked up the most. Trump has gone out of his way to talk stock market higher and he once again mentioned middle class tax cut.