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Morning Notes — Market Internals

Market Internals

February 13, 2020

New cases: The expanded coronavirus case count in China based on a new screening methodology isn’t necessarily good news, but important to understand these new cases didn’t contract the virus overnight. These are existing cases that went undetected and improved methods of detection should only lead to more effective containment policies going forward.

Temporary: Markets are not dismissing the economic fallout from the outbreak, but they are ‘looking through’ it. Consensus expectations for China Q1 GDP are for ~4% growth (down from ~6%), which probably needs to go lower…maybe much lower. Earlier this week, we estimated Q1 growth would fall as low as ~1% with China manufacturing PMI for February coming in at ~40. The Q1 hole is going to be large, but also temporary. One of our top risks heading into 2020 was related to China growth. We felt China growth needed to stabilize in the 5.5%-6% range to keep the ‘above trend’ global growth theme intact. The coronavirus outbreak is clearly an ‘external’ drag on growth but China has a very large policy toolkit to counteract temporary/external factors and it’s response is likely to be more than adequate.

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