More than 70% of 305 S&P 500 companies that have reported so far have exceeded quarterly earnings estimates, according to IBES data form Refinitiv.
The results from the latest sentiment survey from the American Associaiton of Individual Investors: bullish up 1.9ppt to 33.9%; neutral slips 0.3ppt to 30.9% and bearish slid 1.6ppt to 35.2%.
In a note this week, Ned Davis said “sentiment/valuation continues to suggest high risks” and in his opinion sentiment is “overly optimistic”.
“All I am saying about sentiment is, ‘be wary of the crowd at extremes’.”
The WHO sought to temper optimism that the coronavirus outbreak may have peaked.
Dr Mike Ryan, the organisation’s top emergencies expert, said it was very difficult to make predictions on the course of the disease first reported in the central city of Wuhan in late December, noting: “We are still in the middle of an intense outbreak”.
“There are cycles of transmission, and we may see those cases increase in the coming days. But at least for the moment, things are stable,” Dr Ryan told a news conference.
“But 4000 cases or nearly, 3700 coronavirus cases confirmed in a single day, is nothing to celebrate and is certainly still a great worry,” he said.
As of 6am Geneva time on Thursday, there were 28,060 confirmed coronavirus cases in China, and 564 deaths. Outside China, there are 225 cases in 24 countries, with 1 death.
Local: AiG performance of services January, RBA governor Philip Lowe’s semi-annual testimony to Parliament 9.30am AEDT, RBA Statement on Monetary Policy at 11.30am AEDT
Overseas data: China January exports, imports and trade balance; Euro zone December industrial prodction; US January nonfarm payrolls
ASX futures were up 12 points or 0.2% to 6992 near 8.15am AEDT
- AUD -0.2% to 67.30 US cents
- On Wall St: Dow +0.3% S&P 500 +0.3% Nasdaq +0.7%
- In New York: BHP -0.6% Rio -0.5% Atlassian +0.9%
- In Europe: Stoxx 50 +0.7% FTSE +0.3% CAC +0.9% DAX +0.7%
- Nikkei 225 futures -0.3% Hang Seng futures -0.3%
- Spot gold +0.6% to $US1565.09 /oz at 1.07pm New York
- Brent crude -0.5% to $US55.03 a barrel
- US oil +0.4% to $US50.96 a barrel
- Iron ore +2.3% to $US83.17 a tonne
- Dalian iron ore +0.9% to 590 yuan
- LME aluminium +1.2% to $US1737 a tonne
- LME copper +0.2% to $US5735 a tonne
- 2-year yield: US 1.45% Australia 0.78%
- 5-year yield: US 1.46% Australia 0.79%
- 10-year yield: US 1.64% Australia 1.09% Germany -0.37%
- 10-year US/Australia yield gap: 55 basis points
From today’s Financial Review
Coronavirus sinks Packer’s Crown deal: The global outbreak has caused Lawrence Ho’s Melco to abandon its plan to buy a bigger stake in James Packer’s Crown Resorts.
Economists see end of RBA’s rate cut cycle: Surprisingly strong consumer spending in the final three months of 2019 has triggered investors to upgrade retail stocks and abandon calls for another rate cut.
The RBA message the PM doesn’t like: The Morrison government isn’t so keen on Lowe’s message that governments should be doing a lot more to ensure strong and consistent growth.
How Morrison quietly sounded the death knell for coal: In Scott Morrison’s speech to the press club last week, an important nuance went unnoticed. The prime minister basically sounded the death knell for coal-fired power.
Trump slams tormentors in grievance choked victory lap: Mr Trump launched into a lengthy tirade that traversed the “Russia hoax”, the Mueller inquiry and his “perfect” phone call with Ukraine.
US stocks gained for a fourth straight session on Thursday and Wall Street’s main indexes hit record highs.
The Dow Jones Industrial Average rose 88.92 points, or 0.3%, to 29,379.77, the S&P 500 gained 11.09 points, or 0.33%, to 3,345.78 and the Nasdaq Composite added 63.47 points, or 0.67%, to 9,572.15.
Among S&P 500 sectors, communication services and technology led the way, while energy fell the most.
Capital Economics on US payrolls: “We forecast a strong 185,000 gain in non-farm payrolls in January, which would add to the evidence that the economy is turning a corner. That would also be enough to keep the unemployment rate at a 50-year low of 3.5%, although we forecast that average hourly earnings rose by only 0.2% m/m. The annual benchmark revisions could take some of the shine off January’s report, however, with early indications pointing to potentially-significant downward revisions to employment growth over the past 18 months.”
Fundstrat Global’s Tom Lee rethinks his short-term correction view: “On 1/27, our near-term equity view turned cautious as we expected the S&P 500 to have a probability of moving towards 3,150 as the combination of corona virus risk + Boeing hit + risk-off in credit/VIX pointed to an expected risk in “equity risk premia” (falling P/E). But after a few sloppy days, the equity markets rebounded sharply this week. Price is signal. And the recovery of stocks negates our near-term correction view. In fact, in the past week, incoming data has on balance strengthened our 2020 thesis and outlook.”
Mr Lee’s bullishness is back: “We see greater than 10% upside in S&P 500 in 2020, with gains likely towards 15% and maybe 20%. Those gains are driven by greater than 10% EPS growth (upside to that) and falling equity risk premia (100bp = 2X turns = 10% rise in stocks).”
The pan-European STOXX 600 index extended gains to a fourth session and closed up 0.4% at 425.49 – an all-time high – but retreated slightly from 426.70 hit earlier in the session as a decline in oil prices weighed on energy majors.
Trade-sensitive basic resources and technology sub-sectors in Europe rose about 0.7% and 0.5%, respectively on China’s move to halve additional tariffs on some US goods.
Lenders Unicredit, DNB and Nordea Bank all rallied more than 6% after reporting strong quarters.
Germany’s Deutsche Bank posted its best day in more than eight years after revealing that a new shareholder, Los Angeles-based Capital Group, took a 3.1% stake in the company.
All this saw the euro zone banks index post its biggest daily gain in a month. Italy’s bank-heavy MIB jumped 1% to close its highest in nearly two years with Fiat Chrysler’s 0.8% rise adding to the rise.
Ingo Schachel, head of equity research at Commerzbank, highlighted a strong rebound in cyclical shares.
“It’s still a tough time for cyclicals but some of the bellwethers like ArcelorMittal have surprised markets with reasonably good numbers.”
The steelmaker soared 11% after reporting a bigger-than-expected annual profit and its lowest-ever level of debt.
Drugmaker Sanofi was the biggest boost to STOXX 600 as well as the main index in Paris after it forecast further profit growth for 2020. Oil major Total’s 1% rise on beating quarterly results also lifted French stocks.
Pantheon Macroeconomics on UK equities: “The 12-month forward price-to-earnings ratio for the MSCI UK index currently stands at 13.2, well below the 19.1 and 15.5 ratios for the MSCI U.S. and Europe ex-UK indices. Put differently, UK equity prices would be 31% higher, if investors paid the same price for UK firms’ expected earnings as in the US. Alternatively, UK equity prices would be 15% higher, if the P/E ratio matched that for European firms.”
China said it would halve tariffs on $US75 billion of US goods, pressing forward on the first phase of its trade pact with Washington even as the coronavirus crisis remains a significant hurdle to its economic engine.
Levies will be slashed from 10% to 5% or from 5% to 2.5% on hundreds of US products starting February 14, China’s finance ministry said. The tariffs on cars, oil, soybeans and other goods date back to September and had been implemented in response to additional tariffs the US had applied in the fall.
Hong Kong shares jumped more than 2.5% on Thursday, the most in five months. At the close of trade, the Hang Seng index was up 2.6% at 27,493.70, marking its largest daily percentage gain since September 4, 2019.
The Shanghai Composite index closed 1.7% higher at 2866.51. The blue-chip CSI300 index was up 1.9%. During the session, both indexes hit their highest level since January 23, just before the markets closed for Lunar New Year break.
The safe-haven yen and Swiss franc struggled for a fourth straight session against the US dollar.
“A lot of the risk-off moves over the last two weeks are being unwound,” said Simon Harvey, FX market analyst at Monex Europe in London. “We’re seeing credible responses from monetary authorities, in China and it looks like it’s soothing market fears of a more entrenched slowdown in the Chinese economy,” he added.
Capital Economics on monetary policy in India, Philippines: “In Emerging Asia, the Reserve Bank of India voted unanimously to keep its repo rate at 5.15%, but left the door open for further policy loosening over the coming months. We doubt that this will materialise, and expect the central bank to tighten policy before the end of the year. Meanwhile, the central bank in the Philippines (BSP) cut its policy rate by 25bp, to 3.75%. With growth likely to disappoint and inflation set to remain well within the BSP’s target, we expect more easing later this year.”
Benchmark copper on the London Metal Exchange had bounced by about 5% so far this week after touching a five-month low on Monday, but pulled back in European trading on Thursday.
“We simply have run out of steam,” said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.
Three-month LME copper rose as much as 1.6% on Thursday to $US5813.50 a tonne, the highest since January 27, but gave up most of its gains by the close. Copper was up 0.2% at $US5735 in final open-outcry activity.
Hansen expects LME copper to stabilise in a range between $US5800 and $US5550. A break on the downside would fuel further selling since that area had been a solid floor from late 2016 to mid-2017.
Copper would be supported by concerns about potential supply shortage of refined metals due to transport restrictions in China aimed at containing the virus outbreak, analysts said. Some ports in China are congested amid the outbreak.
“All my previously booked vessels out of China have to be postponed,” said a base metals trader based in Singapore. “Nothing can be guaranteed now, even the new shipment schedule. I am not the only one getting affected.”
China’s copper buyers are asking Chilean miners to delay shipments due to port shutdowns, adding to tumult in global commodity trade in the wake of the coronavirus outbreak.
While the suppliers haven’t reported any contract breaches, they have verbally agreed with clients to reschedule some deliveries, according to Victor Garay, market coordinator for Cochilco, the copper commission in Chile — the world’s biggest miner of the metal.
“Just like airlines don’t want to go to China, ocean freight companies don’t want to either,” Garay said in an interview.
China’s Baoshan Iron & Steel, the listed arm of the country’s biggest steel producer China Baowu Steel Group, has completed its first iron ore deal settled in Chinese currency with Brazil’s Vale.
The purchase, worth about 330 million yuan ($US47.3 million) and completed last month, is part of Baosteel’s long-term contract with the leading Brazilian iron ore miner, a Baowu statement said on Thursday.
It did not disclose the grade of iron ore or how much tonnage it had bought.
Australian shares rose sharply on Thursday, boosted by a solid performance in the banking sector as well as some strong earnings-related gains, as worries that the coronavirus will dampen global economic growth abated.
The S&P/ASX 200 index advanced 1.1 per cent, or 73.15 points, to 7049.19. That was its best day since January 7 when it jumped 1.4 per cent.