Here is another market sentiment gauge that has reached extreme levels, the AAII measure of individual investors. Bulls rose 3.8 pts to 45.6 and that happens to be the most since October 4th, 2018 and February 2018 before then. Bears fell 2.7 pts to 24.8, 4 pts off the lowest since April 2019. Bottom line, the bull boat is standing room only.
After a one day respite, Asian stock markets fell sharply again on the corona virus fears and its economic impact. The Shanghai comp fell 2.8% to the lowest level since two days before Christmas and 3.7% below its January 15th US/China trade deal signing close. The H share index closed down 2% and gave back its year to date gains. Copper now is at the lowest level since early December. Oil too, falling almost another 2% and the US 10 yr yield is down to 1.75%, also the lowest since early December. These are not signs of an expected acceleration in global trade now that the US and China have a signed trade deal as virus fears now dominate. Soybeans you ask which the Chinese have promised to ramp up its purchases? They are down .5% today to a 6 week low.
Japan’s exports in December fell 6.3% y/o/y, more than the forecast of a 4.3% decline. This is the 13th straight month that is down y/o/y. There was a green shoot and that was a pick up in semi equipment shipments, mostly to China as they build out further their semi industry in order to be less reliant on US suppliers. As for other semi supplies, China is buying as much as they can from everyone, particularly US suppliers, ahead of any further restrictions, particularly on Huawei. Weakness was seen in auto exports as they fell by 12% y/o/y and auto parts were down by 11%. Imports also were weaker than expected y/o/y. On the data and also the general virus driven weakness, the 10 yr JGB yield fell 2 bps to back below zero. The Nikkei was down by 1%.
We will hear from Christine Lagarde at 8:30am est in her 2nd press conference as head of the ECB. I’m most interested in hearing whether they plan on altering their inflation goal from something around 2% to maybe a range like 1-2%. If they do, it would imply acceptance of the current inflation rate and I’d be selling European bonds because they wouldn’t be able to substantiate current monetary policy. For now though this is unlikely but even some in Japan are realizing the elusiveness of a 2% inflation rate, thus why have it as a goal. And why would a central banker think they can hit a target with monetary policy like shooting an asteroid in a video game? Because their econometric models told them they can.