Risk Stabilizes – But for How Long?

China bans all selling – stems decline
Risk assets stabilize
Nikkei -1.01% Dax 0.37%
UST 10Y 1.52%
Oil $51.3/bbl
Gold $1577/oz
BTCUSD $9385

Europe and Asia:

EUR PMI 47.9 vs. 47.9
GBP PMI 50 vs. 49.8

North America:

USD ISM Manufcatuing 10:00

Risk assets stabilized in the wake of very aggressive liquidity infusion actions by Chinese authorities today with US stock index futures actually rallying into the European open.

Chinese equities were down by -7.7% but that was actually much less than the limit down -10% feared after PBOC added more than $170B in bank reserves via a reverse repo and banned all short selling and even outright selling from major institutions in order to stabilize asset prices.

The move worked for now as risk assets across the board saw a rally with USDJPY popping to 108.70 while AUDUSD made a run towards the .6700 figure. Markets are clearly trying to move past the coronavirus fears, but it’s unknown whether the authorities’ short term manipulation efforts will have any impact beyond the next 24 hours.

The facts on the ground are that nearly 2/3rds of China’s GDP production is effectively on lockdown for the next few weeks and if the threat persists longer the markets will have to reprice everything much lower.

For now however, sentiment appears to have stabilized and in FX only cable was under pressure after rumors over the weekend that Mr, Johnson was prepared to play hardball with EU and walk out on negotiations for a post-Brexit deal. Mr. Johnson may only be posturing but the level of instability such actions bring to the market are sure to amplify the risk in cable and as we noted last week the pair remains vulnerable to much deeper selloff once the reality of Brexit sinks in. To add salt to the wound, there were also reports that the UK may go on a general strike if Mr. Johson abandons plans to negotiate in good faith and the impact of such a move on UK GDP will surely force the BOE’s hand on rate cuts.

On the news front today the eco calendar brings US ISM Manufacturing data which could inject a sour note into today’s trade given the very weak Chicago PMI reading last Friday. Markets are looking at a rebound to 48.5 from 47.3 the month prior but if the number misses it could the first of a string of disappointments this week that could show US growth slowing even without the shock of the coronavirus impact. So although risk assets look stable ahead of North American trade the calm may to not last much longer.