US Open – Coronavirus ruins Lunar New Year, Intel adds fuel to tech rally, EZ PMIs stabilize, BOE cut odds ease, Tech Earnings good so far, Oil and Gold slide

The coronavirus outbreak is intensifying, and Beijing is scrambling.  Outrage is growing as local officials failed to address the contagion risks earlier.  Millions of Chinese are unable to travel to see their families to celebrate the Lunar New Year, which is the equivalent of the Thanksgiving and Christmas holiday combined.  China has the highest emergency levels in place and is locking down 40 million people.  State media has the death toll at 26 and concerns are growing that the travel bans in place will start to have a major impact on the economy with some calling for a 1 percentage point hit or greater with Chinese GDP. 

Europe’s PMI day

The eurozone PMI data readings are hinting that Europe is turning a corner.  The German PMI readings all reached 5-month highs as optimism will grow that the bottom is in place for Europe’s manufacturing woes.  The composite reading for the region as a whole was unchanged, but overall this was a positive PMI day that should see optimism grow for the euro once we see start to see safe-haven flows for US Treasuries ease.

The UK saw better than expected PMI data today and that has shifted expectations for next week’s BOE meeting to a coin flip on whether they cut rates.  With expectations rallying to over 70% earlier in the week, currency traders are turning cautious ahead of the BOE rate decision.   As we near the January 30th BOE rate decision, expectations could start to fade for a rate cut.  This will be BOE Gov Carney’s last meeting as he will step down the next day, which happens to be when the UK legally leaves the EU.  Carney has a strong case for keeping rates steady following this week’s strong jobs and PMI data.  Expectations for fiscal stimulus should be enough to keep the Bank on hold. 

Earnings

Intel shares are up sharply after strong earnings and guidance that sharply was above estimates.  Intel is seeing roaring demand for their chips from large cloud-computing centers.  The largest US chipmaker seems to have got its groove back as their revenue reach is expanding to include the auto industry and networking.  On paper, Skyworks Solutions had decent numbers last quarter, but shares tanked after they lost a key supply agreement from Apple.  Broadcom was the lucky winner of the Apple contract that could be worth around $15 billion, and their shares jumped over 2.5%.   

American Express shares are rising in the premarket after reporting slightly better than expected earnings and decent guidance. 

Oil

Oil’s beating continues as the lockdown situation keeps getting worse in China.  Even possible news that OPEC + is considering extending their production cuts to the end of the year is only seeing a 15 cent spike get quickly erased.  The demand blow for crude will continue to weigh on oil prices until we have further clarity that the coronavirus is contained.  Travel bans during the Lunar New Year holiday period is much worse than what the impact would be if the US had bans during the Thanksgiving and Christmas holiday.  WTI crude continues to hold onto key support from the mid-$50s, but if that breaks, $50.50 is the level to watch before things get really ugly.  With much of Asia shutting down for the Lunar New Year holiday (Taiwan, Vietnam, China, South Korea, Hong Kong, Macau, Malaysia, and Singapore) we could see choppy moves next week. 

Gold

Gold prices are down on the day but stubbornly stuck to its January range.  Many investors are surprised gold is not much higher as the coronavirus is spreads and fears of a pandemic are growing.  Gold struggled this week as strong safe-haven demand for Treasuries have propped up the dollar.  Gold will miss out on strong purchases this Lunar New Year holiday.  In the short-term $1,550 prove key support for the precious metal while the $1,570 level is starting to look vulnerable.  Next week the focus will be on the Fed and if we start to see markets become nervous on the tempering of balance sheet growth, we could see a wave or risk aversion benefit gold prices.    

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