13.02.2020 – Daily Report. Bad surprise on Thursday: The number of corona infections in China has increased dramatically. Almost 15,000 new cases in one day – Beijing is now allegedly using a new counting method. And it seems the People’s Liberation Army is now intervening. With this Beijing damages the confidence of the investors – the DAX resets.
Reset from all-time high
The unexpected turnaround from China initially boosted the DAX. The leading German index fell by 0.6 percent to 13,666 points. Yesterday, the DAX had marked another all-time high. After the previously sent out signals of relaxation during the epidemic, the indicator had risen to 13,759 points. In the end, the index had closed with a gain of 0.9 percent at 13,750 positions.
In view of today’s reports from the Middle Kingdom on the Covid-19 virus – now the official name of the World Health Organization – US futures also fell by around 0.7 percent.
Neck blow from China
The number of newly reported deaths in Hubei province in China, which is particularly badly affected, rose rapidly yesterday by 242 to 1310. In addition, 14,840 new cases were reported, according to the Health Commission – about seven times as many as the day before. The “New York Times” reported that China had used a new counting method – according to official statements, in order to be able to treat more people. ZeroHedge has prepared the numbers in a nice graphic way.
Cleanup in China
The fact that it is probably not just a matter of a counting method is made clear by the reaction of the leadership in Beijing. The head of the Communist Party for Hubei, Jiang Chaoliang, had to take his Mao cap, according to the Xinhua news agency. He was replaced by the former mayor of Shanghai, Ying Yong. The head of the party in Wuhan city, Ma Guoqiang, has been replaced by Wang Zhonglin, a former employee of the Shandong provincial government. Two heads of the health authorities in Hubei had already been dismissed on Monday.
The army intervenes
Now apparently the Chinese military is playing a greater role. The blog ZeroHedge referred to the daily report of the People’s Liberation Army: According to this report, Chen Wei, an expert in biochemical weapons, will be stationed in Wuhan to fight the virus. According to Epoch Times, Chen Wie holds the rank of Major General Until her interview with the state-run “China Science Daily” on 30 January, she was largely unknown. Interestingly, she had predicted in the interview that the outbreak would probably subside in the next few days, but could then soon regain strength. That is how it happened. Speculation that the virus could have escaped from the P4 laboratory in Wuhan – which could point to a bioweapon – has not subsided.
Slight losses on the Asian stock exchanges
All these events immediately caused distrust. China’s corona figures are as untrustworthy as its economic statistics, some brokers said. Haircut, embellished, fake. We are curious whether the abrupt deterioration of the situation will soon cause panic on the world’s stock markets. If you trade CFDs or online stocks, you should perhaps consider short positions for hedging. However, the Chinese crackdown may also be interpreted positively as determination. Especially if the current high numbers remain a one-time upward revision. Let’s wait and see.
The reaction of the Asian stock markets was initially moderate on Thursday. The CSI-300 fell by 0.6 percent in the morning to 3,960 points. The Nikkei in Tokyo lost only 0.1 percent to 23. 827 points.
US bull market continues
On Wednesday the US stock markets had risen, partly because of the supposed easing of the epidemic. All three major indices posted new records yesterday. For the first time in its history, the Dow Jones passed the 29,500 point mark to reach almost 29,569. At the closing bell, the index posted a gain of 0.9 percent at 29,551 points. The S&P 500 gained 0.7 percent to 3,379 points. And The Nasdaq Composite closed 0.9 percent stronger at 9,726 points.
Buying frenzy in US Treasuries
The US Treasury got rid of $27 billion worth of ten-year notes – the yield fell to 1.622 percent, almost 25 basis points below the January auction. This was the lowest yield since October, when 1.59 percent was achieved in the wake of burgeoning recession fears. The bid-to-cover rate was 2.58, the highest since June 2018.
The Fed remains vigilant
Meanwhile, the US Federal Reserve wants to keep an eye on Covid-19. Probably the effects would become apparent “quite soon” from the economic data, Fed Chairman Jerome Powell told the Senate Banking Committee yesterday. The consequences of the corona virus are likely to be “considerable” for China, but not for its direct trading partners. At the moment it is too early to assess whether the epidemic could lead to a “fundamental reassessment” of the economic outlook.
What the day brings
In the afternoon, important US economic data is scheduled, the overview can be found as always here: Market Mover
At 02:30pm the consumer prices for January will be published.
At the same time the weekly first applications for unemployment assistance are registered.
And also the real incomes in January.
The Bernstein Bank wishes successful trades!
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