Thread by @Trinhnomics

South Korea reports 31 more cases bringing total to 82 😬🇰🇷 & as expected the 1-yr LPR rate is slashed by 10bps & 5-yr only 5bps to 4.75%.

Rates going lower in China despite rising CPI & that means the gov is more worried about growth 🇨🇳👈🏻

Note that we still don't have updates from China for 19 Feb but the fatality rate based on the official figure is rising everyday to close to 3%. What is key is the spread of the virus outside of China & the ratio of people confirmed/serious critical or death.

HK is 6/65 or 9%

Another thing people watch for is NOT outside Hubei confirmation but OUTSIDE CHINA & the cases for Japan & South Korea are rising. To be fair, most of the cases are from this cruise - 621 infected out of 3711 or 21% infection rate 😬😬😬

Let's look at what's happening in Wuhan, Hubei. A lot of doctors & nurses are infected. +1 death in Wuhan was Dr. Liu Zhiming (Director of the Wuchang Hospital) & on 14 Feb, a nurse died. 7 health workers died out of 1716 infected.

Yesterday, there was +108 deaths in Hubei.

Note that for a few days now we get very lagged ex-Hubei data & begs the question of what's causing the lag?

According to NDRC, >50% industrial enterprises in Guangdong, Jiangsu, and Shanghai resumed production (that means the hit ratio is still low & question of what capacity)

For the first 2 wks of Feb, auto sales were -92% 🚗😬😬😬

Btw, the new confirmed cases for Hubei dropped massively on new criteria 🤗. China's health authority released the sixth edition of its diagnostic criteria for the coronavirus, removing a category of cases diagnosed clinically, such as through chest x-rays, in Hubei.

Btw, Sydney Airport warns on corona virus as annual profit drops -42%. Quantas said it will cut 16% capacity in Asia until end of May.

Global tourism is taking a hit & thus all sectors related to this.

Not just a China airline story - watch regional airlines. South Korean airlines are expected to take a hit after an already abysmal year on weak global growth & mini trade-war with Japan. Asiana reduced service to by -80% and Southeast Asia by nearly -30%.

Reduced demand =???

Onshore Chinese equities are up (by a smudge) but offshore HSI Chinese enterprise index down (a smudge) & so therefore we continue to have DIVERGING valuation of Chinese onshore & offshore despite the connects & what not due to the fact that onshore liquidity has capital control.

Did u know that valuation of Shanghai Composite has gotten more expensive? Yes, because earnings down but price resilient so PE goes up.

SHCOMP price/earnings = 14.3
HSCEI (hang seng Chinese firms) = 8.7

Interesting right? 🤗 Sectors are similar so diff is onshore/offshore!!!

@michaelxpettis was on the case about this difference b/n onshore/offshore valuation & risk premium 👇🏻👇🏻👇🏻:

ft.com/content/2362a9…

@michaelxpettis Urgh, two from Japan cruise died of corona virus 😬

@michaelxpettis Markets are turning downward, including onshore Chinese markets now, following offshore moves...

@michaelxpettis Asian FX being sold off aggressively vs USD & note that people are going to watch what happens outside of China. During SARS, fatality outside mainland China was way WORSE & so markets will react more to external data vs the ex Hubei data that looks better by the day...

@michaelxpettis The dollar is going off the chart: DXY at 99.7 & Asian FX hammered esp KRW, SGD, MYR & obvs AUD

Pricing in DIRECT EXPOSURE VIA CHINESE DEMAND & INDIRECTLY VIA COMMODITY PRICES.

This is now an Asian story & not just a mainland China story.

@michaelxpettis Who are the big consumers of commodities? Asia!!! Who? China, Japan and South Korea.

Watch this virus if u trade commodities. Demand is key (obvs supply too) but demand not doing well now...

@michaelxpettis Asia and oil, gas, and food. What do you see? Well, well, well, we are BIG BUYERS OF THIS, especially China, Japan and South Korea & India.

And it just so happens that the virus hits China, Japan & Korea, the epicenter of commodity demand👇🏻👇🏻👇🏻😬

@michaelxpettis Market movement since the news hits: crude prices moved downward & also other stuff too like iron ore 👇🏻👇🏻👇🏻

Why? Big customers getting infected by the corona virus & that has downward implication for demand.

@michaelxpettis This is the currency move since 20 Jan 2020 (basically around the hit of virus & Wuhan lock-down).

Biggest losers: SGD, KRW, AUD, THB (losses greater than -3

Winners: PHP 🙇🏻‍♀️🙇🏻‍♀️🙇🏻‍♀️

@michaelxpettis Btw, details emerging that both are above 80s & a man & a woman. Markets are going to watch this high group of infected people from the cruise ship - biggest sample we have outside mainland China.

@michaelxpettis Takeaways:
a) Japan is increasingly becoming a worry so that means canceled conferences (I'm due there in 2 wks) & cautious people = DECLINE IN DEMAND
b) Summer Olympics even if on likely weak.

So? Asian growth is increasingly infected by the virus & not contained to China alone

@michaelxpettis Btw, just some side note, after the age of 2 deaths in Japan revealed, equities recovered some losses BUT NOT AUD.

Why? Because commodity prices & linked assets are 1st hit w/ the decline of demand so PRICING IT IN MORE.

Begs the question, can equity be divorced from earnings?

@michaelxpettis AUD losses now -0.66% & at some pt these resilient equity prices will have to report their earnings.

To keep this lofty valuation (SPX), firms inside SPX have to be somehow SHELTERED from decline of demand in Asia (as in very US centric).

So, earnings. Watch earning forecasts..

@michaelxpettis #Breaking 800 workers at Korea chipmaker Hynix quarantined. This is the world #2 memory chipmaker

Talk about supply chain disruption for electronics by the corona virus 🇰🇷😬

@michaelxpettis This is a supplier to Apple obvs.

@michaelxpettis Urgh, South Korea confirms 22 more cases & so we have 104 now, according to Yonhap.

😬🇰🇷

@michaelxpettis South Korea reports its first death. Things are escalating fast.

😬🇰🇷

@michaelxpettis Korea confirms 52 more cases so total is 156. Growth rate is high. Kospi not liking this.

@michaelxpettis Asian FX getting hammered, esp USD/KRW. The CNH is also going as well but less. In Asia, this corona virus is not just about being infected via China (supply chain, tourism, demand) anymore but literally going onshore, such as South Korea's situation.

AUD lost almost 6% ytd 👇🏻👇🏻

@michaelxpettis THB loss also big on tourism hit -5.1% so far & KRW -4%.

IDR still strong at +1% & best in Asia. Look at the ASEAN FX - very resilient, esp IDR, PHP & VND.