ASX points higher at the open

The ASX is set for a steady start with futures pointing 21pts higher in overnight trading after the World Health Organisation (WHO) ruled in favour of no global emergency. Though, it’s likely to be revisited should the situation worsen, which looks to be the way things are travelling at the moment given numerous worrying signs that the Coronavirus is yet to be contained.

As Brent Crude slips again for the fourth day in a row and to its lowest levels since November, falling 1.8% to US$62/bbl, watch for oil sensitive stocks like Santos (STO), Woodside Petroleum (WPL) and Oilsearch (OSH) to underperform. Kogan (KGN), another stock of interest, remains slumped having dropped over 30% in the past few days. It remains to be seen whether lower gross profit margin growth, the reason behind the multi-product online retailer’s enormous decline and exhibited in Kogan’s latest trading update, will prove to be temporary or something more permanent. Either way, the stock demands interest and could potentially be a value pick in a landscape of lofty multiples.

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Aussie jobs less than perfect

A solid jobs report on face value saw AUSUSD spike 0.4% yesterday. But the rally has since full retraced during US trading as details of the report were digested as being less than perfect. Headline employment proved a strong beat coming in 28.9k vs 15k, while the unemployment rate ticked lower by 10bps to hit 5.1%.

Crucially then, the fact that full-time employment has come in negative is a stark reminder that much of the headline beat is driven by part-time employment, or seasonal holiday hiring. Once markets get through the Summer, the underlying weakness in the Australian labour market – a focal point for the RBA – is likely to become much more pronounced. Especially when coupled with other domestic concerns in bushfires and weak consumption.

The RBA should now stay on hold in Feb, with May pricing in an 80% chance of a rate-cut. But wait for Q4 inflation next week, which will provide more clues. AUDUSD sustains in no-mans land and will find it hard to breach the 200d-MA.

ECB Strategic Review

EURUSD settled 50pips lower, but was arguably, largely uneventful as expected. The ECB’s Strategic Review will conclude by the end of the 2020, and will look to focus on “reviewing the effectiveness and potential side effects of the [the past decade’s] monetary policy toolkit”, how the ECB assess price stability and communication practices. This was flagged previously and doesn’t come as much of a surprise. Until the Review is complete, I think ECB dovish risks are off the table.

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