Market Overview

The decline in Asian stocks forced Wall Street indexes to retreat from record highs. The US market was closed on Monday since the United States celebrated the President's Day related to George Washington's birthday, but the American stock indexes futures yesterday traded higher on world markets because of the clearly positive Asian dynamics. The dispositions changed dramatically on Tuesday to a negative picture, straight from the early hours of the day.

The revenue warning from Apple Co that it won't meet its quarterly target in March due to the coronavirus, was the main reason for anxiety today. Apple is dominating news headlines today and its shares dropped almost six % in Frankfurt. Although the number of new coronavirus cases in mainland China fell below 2,000 for the first time since January, the death toll in China has climbed to 1,868, the National Health Commission said, and the outbreak remains far from being contained. This is why Apple issued a warning that its recovery could be delayed.

How serious could the consequences really be? Mehdi Hosseini, a senior analyst at Philadelphia-based Susquehanna Financial Group, commented for Bloomberg TV by saying: "This is not entirely surprising, everybody was expecting some of the disruptions in the supply chains. But, the number one question is what happens with the demand. If there is a demand disruption that is gonna sustain for one or two quarters, we could see a more broad-based slowdown." And, of course, this is not just about Apple, but many other companies are alarmed over how soon Chinese consumers will be able to return to a more active life. If China's consumption of semiconductors lessens, it could also impact suppliers in Taiwan and South Korea.

However, the Japanese Nikkey 225 index fell most noticeably, it has lost almost 2.5% since the beginning of the week. However, the Japanese market drop was spurred by the sharp -6.3% year-on-year Gross Domestic Product (GDP) decrease in Japan. There is a clear understanding that the virus is unlikely to be responsible for this GDP decline, it just hasn't had enough time to produce such a devastating effect on January's data. Moreover, the weakest components of Japan's GDP report were the private consumption (-2.9%) and the capital expenditure (-3.7%), while the strongest component was the external demand (+0.5%). The Japanese Yen may suffer even more in case of a further decline on global stock markets. Safe-haven buying of Japanese Yen could be limited if this is the case, while the hedge fund managers would pay more attention to the US Dollar and gold contracts.

The Chinese stock market performed well today compared to the Japanese stocks. The Shanghai Shenzhen index (CSI300) lost 0.49% only today after it gained +2.25% before on Monday. The Hang Seng index (HK50) of Hong Kong fell -1.32% on Tuesday after +1.04 result yesterday. The Shanghai Composite index (SSEC) fell just -0.43% today, compared to Monday's close, but regained to a small positive level of +0.05% performance by the close of today's trading in China. It is important to observe that all these Chinese indexes have outperformed the levels at which they were before the Lunar New Year holidays on January 23 when the massive hysteria around the coronavirus hadn't started yet. Certainly, the People's Bank of China with everyday liquidity interventions, adrenalised Chinese stock markets enormously. Still, the whole technical picture indicates a certain stability, or even a market immunity to the outbreak.

Nevertheless, all financial instruments, without exception, are expected to consider further fluctuations of Asian markets. The most sensitive reactions may be expected by the global S&P500, Nasdaq and Dow Jones indexes on the intraday base until the end of the week. The pan-eurozone Euro Stoxx 50 initially dropped -0.7% on today's market opening, but then recovered a half of its loss. The same story is repeated with the French CAC 40 and the German Xetra DAX. The European markets were hit by the weak HSBC group report but still it looks like Europe has not yet succumbed to any kind of panic. Yet, main events are expected to unfold after the US stock market opening.

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