Wall Street once again ignores external fears
US100 hits all-time highs ahead of the earnings
OIL plunged lower before recovering
It was a rollercoaster day on the markets as news of coronavirus spread in China spooked investors in Asia. The lethal virus killed few in China but is said to spread quickly through human contact and it was detected in Japan, Thailand and South Korea. Since China prepares for the Lunar New Year when the Chinese travel back home, a risk of outbreak is heightened and a hit for the Chinese economy will be more severe. The Chinese indices plunged 2.5% and other Asian indices were in the red as well. While Europe was a bit slow to recover from these losses, US market did not hesitate and just as Wall Street was quick to dismiss Middle East tensions, it also quickly ignored this risk. That shows how strong the current trend is but it also points at a level of complacency. While we do not think that the virus itself could stand behind a major Wall Street correction, investors might overlook more significant signals.
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DE30 recovered all-the morning losses and looks poised to test all-time highs. Source: xStation5
One of such signal could come from earnings that have been underwhelming so far. Yes, some of the Wall Street banks looked good (especially Morgan Stanley) but overall the EPS for S&P500 companies that have already reported is lower than a year ago. Also the UBS reported lower results and guidance today in the mornings. But US is tech driven these days which is why today is important – we await reports from the IBM and Netflix that pretty much start the tech earnings season.
FX was rather calm today with GBP standing out despite mixed labour market data (wage growth slowed and was a notch below expectations). US dollar is more less flat despite Trump criticizing the Fed in Davos. EM currencies were rather calm as well, although USDBRL inched up again to the highest this month.
OIL was falling hard at one point today as the virus spread could hurt demand in China but as risk-on mood returned OIL reduced the losses too. Still the price is down for the second day.
Wednesday is a special day for the Canadian dollar. The CAD traders will get the BoC decision and the inflation data. But first, the key thing to watch are the earnings today after the US close.
