The economic impact of the coronavirus becomes evident

Market movers today

• Today is the big PMI day. We get flash PMIs for February in the euro area, the UK and the US, which will be particularly interesting in the light of the economic shutdown of China. We expect a dip by 0.5 points in the manufacturing indices.

• Riksbank minutes are released (see page 2 for more details).

• We have several Fed speakers as well. We do not expect any of them to change their consensus story that the current stance of monetary policy is appropriate.

Selected market news

Global equity markets were generally under pressure yesterday amid concerns about further spreading of the coronavirus to other Asian countries. This morning Asian equity markets are more mixed with Japanese and Chinese stock markets seeing slight plusses. The big theme today will be the focus on the backlash of the virus and the economic shutdown in China on economic activity with a number of flash PMI February releases in Europe and the US due. Already this morning we got the Japan editions where both the manufacturing and service PMI fell quite sharply to the lowest levels in eight and seven years, respectively. Noteworthy, the service PMI recorded the biggest decline, which may be a bit surprising given that the number of recorded cases outside the cruise ship remains limited. USD/JPY has surged the past few days as poor data ticked in and now stands at 11.96 as the chance of Bank of Japan coming to the table increases. Abe's fiscal spending package might no longer be enough to pull the economy back on track in Q1 after a typhoon and a VAT-hike weighed heavy on the economy in Q4. Bank of Japan does not have much dry powder left and it is still likely to assess how temporary the situation is, before it takes action. If this trend is confirmed in other Asian countries as well, economic activity could take a big hit as also the manufacturing sector is likely to be affected significantly. 

Attention now turns to European and US PMI releases during the course of today. In the US, some of the regional surveys have already been released in terms of the Philly Fed and Empire State survey. In line with the Empire State, the Philly Fed measure came out stronger than expected suggesting some upside for today's Markit PMI number. In that sense the US manufacturing may so far be relatively unscathed. However, it is important to keep in mind that Markit PMI has delinked somewhat from the regional surveys recently. Furthermore, a key indicator of global manufacturing activity, the number of vessels sailing globally, has plunged in recent weeks, suggesting quite an impact of the virus on global manufacturing activity.

Yesterday, the ECB accounts from the January meeting were released and there was a speech by Vice President De Guindos. While the accounts did not reveal much new information, De Guindos speech was more interesting. While it was quite balanced, we took note of his warning that 'investors tend to anticipate a more extended period of time to the date of a rate hike', which in our view indicates that the ECB may not necessarily share the view of markets pricing in a 7bp rate cut for this year. We expect ECB to be on hold this year.

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