February 19, 2020

US Futures Trade Higher

US Futures Trade Higher

Investors are pushing the US futures and European markets higher fueled by Chinese optimism. As we discussed yesterday, China is sending a strong signal to markets that Beijing is equipped to support the markets with whatever it takes. Apple’s revenue warning jolted the market’s yesterday.

Investors questioned the resilience of the bull rally in equity markets. The question was how big the impact of the coronavirus would be on corporate earnings?

Yesterday, the biggest game in town was trading the risk-off assets and this is why we saw the VIX index blasting through the roof again. It surged over 7.65% yesterday. This was the biggest move since it surged 21.6 percent on Jan 31. Over the 52 week period, the index is down by 0.34%, but the 30-day price volatility has soared to 124.4% compared to 122.15%.   

Today, the buoyancy is fueled by speculations that China may directly inject cash injection in order to cushion its airline industry. The entire Chinese industry is going through the toughest of times. Its airline industry has shrunk to such a small size that it makes Portugal’s airline industry looks like a giant. Given the fact that Beijing is going to provide its support, airline stocks such as China Eastern and Hainan Airlines  have risen significantly higher.

We think that in the coming days, there could be some intriguing mergers as bigger players take over smaller ones, and government subsidies may provide an extra lifeline.

UK Inflation

At 09:30 UK time, we are going to see the UK’s CPI y/y inflation number. The headline number hit the lowest point since December 2016. This has supported consumer spending during the Brexit period of uncertainty that was powered by the incompetent behavior of lawmakers. Today’s CPI number is likely to tick higher due to the rise in train fares, but heavy discounts offered by retailers due to a disappointing December sales period may offset some of that effect.

FOMC Meeting Minutes

Later in the day, we have the FOMC meeting minutes and the hopes are that the Fed will acknowledge the softness in the industrial data and pay courtesy to corporate earnings. Disruption in the supply chain is not something that can be eased off that easily. Market participants would like the Fed to provide them with some kind of assurance as well.

Commodities   

In the commodity trading space, gold price blasted through the 1,600-mark once again—the second time this year.  The fact that the price is still holding  on to this level confirms that there is something cooking under the hood. What I mean by this is that investors aren’t fully convinced about buying into the dip mentality.