United States

The global spread of the COVID-19 epidemic has not subsided, the number of cases globally has risen sharply and exceeded 230,000, and the number of deaths globally has also broken the 10,000 mark. Europe became an epicentre of the COVID-19 epidemic, virus deaths in Italy alone surpassed Chinese figures. However, the selloff in US stocks has shown signs of easing. Over the past 5 days ending Thursday, the Dow fell 5.25%; the S&P 500 lost 2.87%; while the NASDAQ has the smallest drop of only 0.71%. US equity markets recorded the worst one-day percentage drop since 1987 on Monday, and triggered the ‘Circuit Breaker’ several times in recent weeks. Apart from stock markets falling, it was surprising that other assets classes also experienced significant selloffs, this includes traditional safe haven assets such as investment grade bonds and gold. The common consensus on the cause of the prolonged market fall was mainly driven by large-scale deleveraging factors, resulting in virtually all financial assets being sold in the market for cash. Therefore, the US dollar index which reflects the strength of the Dollar has also risen sharply. In terms of international oil prices, after Saudi Arabia insisted on increasing crude oil production, WTI Crude briefly touched the level of US$ 20.06 per barrel, before rebounding to around $26.6/barrel at the time of writing. At the moment, the fed funds rate is down to 0.00 - 0.25 %, and President Trump has signed the second epidemic relief bill of US$ 1.2 trillion, the market is still evaluating the effectiveness of the latest rescue measures.

Europe

The number of new cases of COVID-19 in the world has increased sharply, and Italy has become the epicentre of the ongoing epidemic, Prime Minister Conte will announce the extension of the national lockdown and school suspension. Britain however has rejected plans to lockdown London, and Prime Minister Johnson claimed that the government can get the situation under control within 12 weeks. In order to combat the impact of the virus epidemic on people’s livelihood and the economy, the European Central Bank announced an asset purchase plan of 750 billion euros; the Bank of England also cut interest rates by 0.15% to 0.1%, and extended the scale of the bond purchase program by 200 billion Pounds. Over the past 5 days ending Thursday, the UK, French and German indexes fell 1.64% to 6.01%.

China

The COVID-19 epidemic brought challenges to the Chinese economy, and the country’s industrial production, retail sales, and fixed investment growth figures have all seen sharp falls in February. However, the epidemic seems to be fading out in China. This week, the country reported zero locally transmitted cases, the first time since the outbreak. Over the week, the CSI 300 and the Hang Seng Index fell 6.21% and 5.11% respectively. China announced today that its one-year and five-year LPRs will not be adjusted, while the market had originally expected them to be reduced by 5 basis points each. At the moment, market expects that The two sessions will be postponed until late April or early May. Industrial profits data will be published next week.

• Recent activities include : Harris Fraser held a Press Conference on “2020 Global Investment Market Outlook”, Attended Bloomberg Businessweek/Chinese Edition Top Fund Awards 2019
• Columns, media interview and online channels : “TVB News”,“TVB Big Big VIP”, “Now FINTERVIEW”, “iCable Finance”, “iCable News”, “Capital”, “SingTao Newspaper”, “Sing Tao Investment Weekly”, “Headlines News” , “ET Net”, “OrangeNews”, “Quamnet” and online videos produced by Harris Fraser Group. (including but not limited to the above)

Over the month, the Bloomberg Barclays Global Aggregate Bond Index was up 0.67%, US Investment Grade was up 1.34%, while Emerging Markets US dollar Bonds and US High-yield bonds fell 0.20% and 1.41% respectively.

In light of the spikes in volatility at the end of February, we expect fixed income to stay positive this year. Although the FOMC members earlier claimed that there is unlikely to be any changes to the policy rates in the near future, in an attempt to calm markets and provide liquidity, Fed Chairman Powell announced a surprising emergency rate cut of 50 basis points in early March. With the COVID-19 epidemic surging across the globe, it was expected most major global central banks should follow the Fed and provide further rate cuts to boost business confidence.

As the impacts of the supply chain disruption has yet to be fully reflected in the real economy, its threat to equity markets provides upside potential for fixed income products in form of future rate cut expectations. The theme in year 2020 remains heavily dominated by exogenous risk factors and external shocks, fixed income exposure may reduce volatility in the portfolio, reducing downside risk and improving risk adjusted return.

 As global ex-China confirmed cases of the virus increased at an alarming rate, market sentiment rapidly deteriorated as worries of a global epidemic grows. The MSCI Emerging Market Index declined 5.35% in February.

2 months into the New Year and global external shocks showed no signs of slowing down. Just as China reported a slowdown in new cases of COVID-19, South Korea, Italy, Iran, and Japan picked up the ‘slack’ and reported an explosive rise in new cases. This heightened worries in falling global demand and supply chain disruptions, which could pressure emerging markets and mute potential rebounds in economic growth. In particular, most African countries, and a majority of Latin America are expected to suffer due to the softer demand in the world’s second largest economy.

External risks remain, and we stay neutral on EM in the short to mid-term. Until the complete impact on the global supply chain is better understood, we would suggest investors to exercise more caution before investing in the relatively fragile market.

The COVID-19 outbreak remains the elephant in the room for the Japanese economy. With hundreds of locally transmitted cases in the Island by the end of the month, the Olympic Games at the edge of cancellation, many are concerned that the outbreak could send the country into recession.

As the latest economic figures remained relatively weak, especially with the recent epidemic woes, PMI stayed in the contraction zone along with plunging business confidence. Even though the fiscal stimulation has yet to play out as it was scheduled for 2020 Q2, and the monetary support to the markets via asset purchases should continue to provide downside protection, the Japanese economy lacks a catalyst to further advance amidst weak market sentiment.

Due to the virus outbreak in China earlier, Japan is bound to miss the tourist target of 20 million, and the precarious situation of the Tokyo Olympics does not provide much reassurance in the economy. Considering that the ‘black swan’ event of COVID-19 is set to have a material impact on the Japanese economy outlook, we downgraded the outlook for the Japanese equity performance in 2020 from positive to neutral.

As a result, the European STOXX 600 was down by 8.54% (9.21% in US$ terms) in February.

While Brexit matters were overshadowed by the COVID-19 outbreak, EU officials are set to approve the trade talk mandate after the official leave of the UK from the single bloc. EU leaders including Irish foreign minister Simon Coveney urged the UK to start implementing new border rules within months as a matter of good faith, so as to better progress the much needed trade talks before the deadline at the end of 2020.

As for the COVID-19 outbreak, confirmed cases in Europe skyrocketed with the thousands of newly confirmed cases in Italy. Fear in the markets increased, many are also concerned about a supply shock due to the impact of the virus in China. Combining that with the falling global demand and China in particular, the impact on earnings has still yet to be fully realised in European equities.

Fundamentals continued to show improvement. Although Eurozone manufacturing PMI continued to improve, it remained in the contraction zone for thirteen consecutive months, while the Euro Area Economic Sentiment Indicator surprisingly rose to 103.5 in February despite the ongoing COVID-19 outbreak. Overall, we remain less optimistic on the European equity outlook, as fundamentals remain weaker and the actual impacts of the COVID-19 on the European economy have yet to be fully realised.

In February, the CSI 300 Index and the Shanghai Composite Index fell modestly by 1.59% (2.80% in US$ terms) and 3.23% (4.41% in US$ terms) respectively, while the Hang Seng Index also only went down by 0.69% (1.06% in US$ terms).

Chinese official figures showed significant slowdown in new COVID-19 cases at the end of February, which hinted that the epidemic might have peaked earlier in the month. Subsequently, most of the provinces in China have announced gradual resumption of the economic activities, sparking hope that the worst has already been over in China.

That said, economic indicators hinted at the impacts of the virus on the real economy. Business activities were heavily hit with city lockdowns, as indicated by the huge drop in both service and manufacturing PMI to historic lows. The worsening business and consumer confidence could have long lasting effects, potentially dragging down economic growth in 2020. At the moment, we expect monetary policy to further loosen so as to support businesses, and fiscal policies, in particular infrastructure investment, to be enacted at the same time to kick start the economy. Overall, the short to mid-term economic outlook remains relatively volatile in China but seems to be turning for the better.

Equity gains ebbed out amidst COVID-19 worries. With a number of manufacturers including Apple Inc. (NASDAQ: AAPL) already warning investors about a potential supply chain shock due to logistic constraints, many are concerned that the actual impacts of the virus could be wider than markets reflect.

In light of the potential global outbreak, the Fed responded to market expectations, announcing an unexpected emergency rate cut of 0.5%. This is the first time the emergency rate cut is utilised since the financial crisis in 2008, triggered a rise in market panic levels and markets responded negatively to the cut.

Various economic indicators remain relatively weaker, with both manufacturing PMI and consumer confidence index missing market expectations. Despite limited positive signs, monetary easing provides sufficient excess liquidity to support asset prices, which offers better downside protection for the US market.

Overall, the recent fall in equities is driven mainly by worsening market sentiment, rather than worsening fundamentals. Equities are expected to see recovery when market sentiment recovers. Thus, we remain positive on US equity performance over the whole year.

United States

US equities continued the trend of abnormally high volatility. Just as the markets analysed the implications of the surprising emergency 0.50% rate cut from Fed, the breakdown in OPEC+ talks out of the blue triggered a dramatic fall in oil prices, falling by more than 24% over a single day. This triggered global market panic alongside the ever growing issue of COVID-19 outbreak. President Trump held a press conferences to explain the current White House plan for the financial market and economy as a whole, the Fed also announced to inject $1.5T in liquidity to prevent the investment market from drying up. However, markets remained unimpressed. US equities in particular suffered huge losses over the past 5 days ending Thursday, triggering the Circuit Breaker twice over the short timeframe, major equity indexes shed a whopping 15.59-18.84% over the period, Thursday saw one of the largest single day percentage drops since the 1987 stock crash on Thursday. All 3 major US equity indexes entered the technical bear market. The economic data this week still met expectations, earnings forecast remain largely unchanged. Despite fundamentals remaining stable, under impression that the COVID-19 epidemic is bound to happen in the US, market sentiment further deteriorated and valuations fell to minus 2-3 standard deviations from the 5 year average. Next week, retail sales, housing starts and home sales data will be released. The FOMC meeting will also be held during the week, market is currently pricing at least a 0.75% cut to Fed rates.

Europe

Over the past 5 days ending Thursday, the European stock market had one of the worst performances in history. The UK FTSE, French CAC, and German DAX fell 21.89%, 24.56, and 23.30% respectively, while the Italian MIB fell a whopping 30.90%. The oil shock joined hands with the COVID-19 outbreak, causing great fear in the market, the forward P/E of the European STOXX 600 Index even fell to over minus 4 standard deviations from the 5 year average. The COVID-19 outbreak in Europe remains the elephant in the room, with newly confirmed cases showing no signs of slowing down. The WHO finally declared the COVID-19 crisis a pandemic, the epicenter of the outbreak, Italy, has taken drastic measures and put the whole country under lockdown, many fellow European countries banned public events and gatherings for the time being in order to curb the virus spread. In an unexpected manner, the ECB did not follow the Fed and announced no changes to the existing interest rate. Even though the quantitative easing in form of an additional EUR 120 billion Asset Purchase Plan (APP) should continue to provide support to the market, markets reacted poorly and market sentiment remained on the lower end. Next week, Eurozone CPI figures and ZEWS Survey Expectations will be released next week. Market expects CPI to stay flat while the ZEWS expectations should fall into deep negative territory.

China

Compared to the global stock market, the China and Hong Kong stock markets have experienced relatively smaller declines this week. The CSI 300 only fell 4.53%, while the Hang Seng Index dropped 7.03%. Just as the World Health Organization confirmed the COVID-19 as a pandemic, there was greater market panic in the markets outside China and Hong Kong, resulting in greater selling pressure in overseas stock markets. As for China, recent news indicated that the central government may soon reduce the RRR and announce consumption incentive plans and other stimulation measures, the news provided support to the market. Economic data showed that China’s annual inflation rate slightly slowed to 5.2%. At the same time, new RMB loans in February also fell sharply, reflecting the impact of the epidemic on the real economy. Next week, China will release February fixed investment, industrial production and retail sales data, as well as the Loan Prime Rate (LPR).

• Recent activities include : Harris Fraser held a Press Conference on “2020 Global Investment Market Outlook”, Attended Bloomberg Businessweek/Chinese Edition Top Fund Awards 2019
• Columns, media interview and online channels : “TVB News”,“TVB Big Big VIP”, “Now FINTERVIEW”, “iCable Finance”, “iCable News”, “Capital”, “SingTao Newspaper”, “Sing Tao Investment Weekly”, “Headlines News” , “ET Net”, “OrangeNews”, “Quamnet” and online videos produced by Harris Fraser Group. (including but not limited to the above)

United States

US stocks had abnormally high volatility this week. At the beginning of the week, it was reported that major global central banks would work together to stabilize the market. The news reversed the original pessimism in the market, sending US stocks up for the largest single day percentage gain in 14 months on Monday. However, the subsequent announcement of an emergency 50-basis-point cut in the policy triggered market worries that the financial crisis may recur, US stocks have once again plummeted on that day, and in the two following days saw sharp fluctuations in the market. After the Fed decided to carry out the first emergency rate cut of 50 basis points in more than a decade, the yield on 10-year US Treasury bond yield fell below the 1.00% level, reflecting large fund flows into US debt to reduce risk exposure. Another focus of the market is the ‘Super Tuesday’ of the Democratic Party presidential primaries. As the results came out, former Vice President Biden won 10 states and increased his lead, the news brought positive sentiment to the markets. In addition, some candidates, such as Pete Buttigieg and Mike Bloomberg, announced their withdrawal and voiced support for Biden. It is expected that the future development in the DNC primaries will be clearer. Next week, data on the US CPI, Michigan Consumer Sentiment, and the NFIB Small Business Optimism Index will be announced.

Europe

Over the past 5 days ending Thursday, the European stock market remained weak, with UK, French, and German stock markets falling by 1.34%, 2.45%, and 3.42% respectively. The rapid spread of the COVID-19 epidemic in Europe worried markets, investors feared countries like France and Italy might enter recession. In response to the development of the epidemic, Italian Prime Minister Conte said that the scale of aid for the epidemic will be increased to 7.5 billion euros, the funds will be used to support families and businesses hit by the epidemic, so as to ensure that no one loses their job due to the virus. As for economic data, the final February Eurozone service PMI rose slightly from 52.5 in January to 52.6, indicating that the February data might have yet to reflect the impacts of the epidemic. The European Central Bank will hold its interest rate meeting next week, the market focus will be on whether the Bank follows the Fed and deepens monetary easing.

China

Compared to the global stock market, the Chinese and Hong Kong stock markets have performed well this week, with A-shares being the best performer. As the COVID-19 epidemic continues to spread across the world, market is hoping that more stimulation measures will be introduced in the Mainland, including monetary policies such as interest rate cuts and RRR cuts, China's 10-year government bond yield fell to a new low since 2002. While presided over a meeting of the Central Leadership Working Group on Response to the COVID-19 Epidemic, State Premier Li Keqiang called for careful and effective strengthening of the epidemic prevention and control. On the other hand, under the increasing downward pressure on the Mainland economy, the work resume ratio is also an economic data worthy of attention. The Ministry of Agriculture in China stated that the spring planting is on track, and expects to meet the food production target despite the epidemic. China will announce February CPI and PPI data next week.

"When the Fed said something to stabilize market sentiment, confidence returned," said Steven Wong, a senior investment analyst at Harris Fraser Group. "As long as central banks are happy to open the tap, all sorts of economic problems can be solved."

Wong added, however, that it remains to be seen whether markets have hit bottom yet.

Full article: Hong Kong shares rise on global monetary easing bets