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MasterCard, United Airline Holdings, Cathay Pacific Airways, Air New Zealand, Burberry group, Pernod Ricard, Royal Philips, Protector & Gamble Co., Adidas AG, Blackmores Ltd., Finnair, Diageo, Tupperware, Apple, Microsoft, PayPal, Ab Inbev, Standard Chartered, HSBC, Tesla, Aston Martin, Toyota, and Danone are just some of the companies to warn that sales and profit may suffer as the coronavirus spreads around the world.
The situation is complicated by the fact that countries begin to publish deteriorating macroeconomic data. Manufacturing PMI in China decreased to 35.70 points in February from 51.10 points in January of 2020, much lower than markets expected. The non-manufacturing gauge also fell to its lowest ever, 29.6. By being below 50, we could start talking about contraction, but nobody is excluding the possibility that by the end of this quarter this data will increase up to 49 points. In the long-term, the China Caixin Manufacturing PMI is forecasted to be around 50.70 points in 2021 and 50.40 points in 2022, according to trading economics.
In this context, the market expects the Fed to cut interest rates. Federal Reserve Bank of St. Louis President James Bullard said last Friday “further policy rate cuts are a possibility if a global pandemic actually develops with health effects approaching the scale of ordinary influenza, but this is not the baseline case at this time… Longer-term U.S. interest rates have been driven lower by a global flight to safety, likely benefiting the U.S. economy.”
Despite that, current US GDP forecasts remain positive, Bullard reaffirmed that the Fed is “willing to react if the virus has a major impact but will want to wait and monitor events until the next meeting.”
In case it actually happens, we might see a fast trend reversal, pushing certain stocks back to their previous levels. For example, KeyBanc assigned buy ratings to Uber and Lyft. Others expect Disney and Netflix shares to grow. It is difficult to say whether it is actually going to happen, as now even defensive companies like Nestle, Danone, and Diageo cut their forecasts. However, investors should analyze whether these companies will be able to recover lost sales. On the other hand, a good part of negative news has been discounted, so we will probably not see deeper falls.
The previous week in the markets
Next week’s most important events:
“Super Tuesday” will be the most important date before the US election
China’s NBS manufacturing and non-manufacturing PMIs for February
Global Manufacturing PMI data (Feb Final)
New Zealand: Import and Export Prices (Q4)
China: Caixin Manufacturing PMI (Feb)
UK: BOE Consumer Credit (Jan)
US: ISM Manufacturing PMI (Feb)
Australia: RBA Interest Rate Decision
EU: Inflation Rate (Feb)
New Zealand: Building Permits (Jan)
Global Services PMIs data (Feb Final)
Australia: GDP data (Q4)
China: Caixin Services PMI (Feb)
EU: Retail Sales (Jan)
BoC Interest Rate Decision
US ADP Employment Change (Feb)
US: ISM Non-manufacturing data (Feb)
US: Fed Beige Book
Crude Inventories Data
Australia: Trade Balance (Jan)
BoE: Gov Carney Speech
BoC: Gov Poloz Speech
Canada: Employment Change (Feb)
US: Non-Farm Payrolls
China: Trade Balance
