Morning Notes — SPX

Snapshot: US equities are lower this morning following steep declines in Asia. Most sectors retreat led by Communications Services (FB post-earnings), Materials (IP post-earnings) and Health Care (med tech), while Staples and Utilities advance. Tech holds up well on software strength post MSFT and NOW reports. Treasury yields are lower across the curve and the dollar is weaker vs the majors. Yen strength isn’t particularly acute, but should be closely followed. Gold is only up +0.30% and WTI is off worst levels, down -1.80%.

• Risk off sentiment in Asia was driven by coronavirus concerns and exacerbated by Taiwan’s catch up decline of -5.75% after its long holiday closure. Adjusted for the closure, Taiwan’s move was in-line to slightly less than other regional markets. And nothing particularly incremental to report on coronavirus as the number of confirmed cases increases as expected and the mortality rate remains relatively low. The economic impact of travel restrictions and business closures in China continues to attract speculation but nothing new there either with estimates still concentrated on a 1% hit to China Q1 GDP. Other countries in proximity should also experience a pause and China’s importance to global economic growth deserves consideration. And US Q4 earnings calls increasingly warn about the negative impact on Q1 results. Mainland markets reopen Monday, while expectations for policy support continue to rise.
• Takeaways from yesterday’s FOMC meeting lean dovish based on an increased emphasis on getting inflation back to 2%.
• The first print of US Q4 GDP came in ahead of expectations but it’s backward-looking data, while Monday’s release of US manufacturing ISM is forward-looking and more important to markets.