1) USD May Fall on ISM Data, Virus Fears, Inflamed Fed Rate Cut Bets
2) Crude Oil May Fall with NOK on Coronavirus, Key Economic Data
3) Gold Prices Ease Back Despite China Stock Plunge On Virus Worries
4) Impact of Virus Outbreaks: S&P 500, Gold, Oil and Currency Analysis
1) USD May Fall on ISM Data, Virus Fears, Inflamed Fed Rate Cut Bets
2) Crude Oil May Fall with NOK on Coronavirus, Key Economic Data
3) Gold Prices Ease Back Despite China Stock Plunge On Virus Worries
4) Impact of Virus Outbreaks: S&P 500, Gold, Oil and Currency Analysis
1) USD May Fall on ISM Data, Virus Fears, Inflamed Fed Rate Cut Bets
Asia-Pacific equities were swimming in a sea of red as concern about the spread and economic impact of the coronavirus infected market mood and caused the Shanghai Composite index to open 8 percent lower. A commodity selloff ensued in tandem with iron ore and copper futures tumbling to their daily limits. Chinese Caixin PMI grew to 51.1, higher than the 51 estimate but industrial profits shrank 6.3 percent from 5.4 percent.
The US Dollar may fall if ISM manufacturing data for December falls below the expected contraction of 48.5 and further stokes Fed rate cut bets amid market-wide pandemonium from the coronavirus outbreak. Panic from the prospect of a contagion has caused a massive selloff in equity markets across the world, with Taiwan’s TAIEX index suffering a 5 percent loss in a single day last week, the largest since October 2018.
On a quarter-on-quarter basis, the prior manufacturing print marked the weakest reading since the 2008 financial crisis, though a recent report from the IMF stated that it expects growth to show signs of modest stabilization. However, with the panic about the coronavirus impacting future demand and economic growth, supply chain managers may revise down their outlook.
A softer-than-expected reading could then aggravate what are already-swelling Fed rate cut expectations with markets pricing in almost 50 basis points worth of cuts by the meeting in December. This comes as the Fed – along with several agencies – warned about “elevated” credit risks from leveraged loans and concern about their stability in an economic downturn.
The US Dollar Index DXY has – until recently – climbed along the January uptrend (red parallel channel) before Friday’s close saw it drop half a percent and erase the latter half of last month’s gains. The index appears now to be staging what could be the beginning of a recovery, though failure to climb higher could see DXY test the January 17 swing-low at 97.09.
2) Crude Oil May Fall with NOK on Coronavirus, Key Economic Data
Concerns about the economic impact of the coronavirus continue to infect market mood and prompting aggressive declines in sentiment-linked currencies and equity markets. The cycle-sensitive Swedish Krona and Norwegian Krone along with crude oil prices have experience significant selling pressure while their anti-risk counterparts like the US Dollar and Japanese Yen have prospered.
Despite the sentiment-sapping nature of the coronavirus outbreak, commodity-linked currencies and Brent may nurse some of their losses after US President Donald Trump delivers his State of the Union address. As highlighted in my outlook on gold prices, the Commander in Chief may allude to expansionary fiscal policies that could spur demand and stimulate economic growth ahead of the 2020 election and boost risk appetite.
On February 3, a cascade of critical PMI statistics will be released primarily from emerging market states which could serve as a useful barometer in gauging the economic health of frontier economies. While there are expectations that the reports will show signs of recovery as part of a broad theme of global stabilization, panic about the coronavirus may have led supply chain managers to give a gloomier outlook for future demand.
German factory orders for December will be a closely-scrutinized data release since it will provide traders a glimpse into the strength of the largest Eurozone economy. For Nordic traders this will be particularly important to watch since approximately 80 percent of all of Sweden’s and Norway’s exports are destined for the EU. Both Nordic countries will also have a cascade of domestic data released including PMI and GDP.
However, the scope for these data releases eliciting strong volatility may be relatively muted as markets focus on fundamental themes like the coronavirus. Furthermore, the outward-facing nature of the Nordic economies makes them particularly sensitive to external shocks and shifts in sentiment. The latter may therefore be a bigger factor in determining NOK and SEK’s price action than domestic economic statistics.
After reaching May 2019 highs in early January, crude oil prices have since declined over twenty percent and is now trading below $60 a barrel. On Friday, Brent briefly flirted with support at 55.90 before closing slightly higher. Looking ahead, crude oil may aim to test an over 12-month floor at 53.06, which if broken, opens the door to further losses at multi-year lows.
3) Gold Prices Ease Back Despite China Stock Plunge On Virus Worries
Gold prices eased back further from last week’s four-week peaks on Monday. The coronavirus story is still driving markets, and Chinese stocks took a big hit as they returned from their extended new year break.
However other growth-correlated assets stabilized and there seems to be some hope that the disease won’t offer the sort of global economic hit associated with previous outbreaks such as 2003’s Severe Acute Respiratory
Syndrome outbreak. Coronavirus seems at this stage to be far less lethal than SARS, despite its contagious nature.
The Chinese authorities have also pledged to deploy a variety of monetary tools to cushion local markets from the effects of the virus.
Still, Chinese economic data showed the manufacturing sector still only just in expansion territory, with industrial profits posting their first annual fall for four years in 2019. They were down by 3.3% according to official data.
Given that this is only one of plentiful economic uncertainties only likely to be deepened by the virus’ effects, the underlying haven bid for gold seems solid enough and will probably remain so.
The next order of business for all markets is likely to be the Institute for Supply Management’s monthly snapshots of employment and manufacturing health in the US. They’re due later in Monday’s global session.
Gold prices remain clearly within the new, higher range built since last week above the previous short-term trading band.
While a durable break in either direction should give a powerful near-term lead, there seems very little appetite to push this market far beyond January’s highs, even though they remain very close to current levels.
Still, the market remains in a clear, gradual uptrend from the lows of mid-January which is still more than $15/ounce below current levels. Even a attest of that would require an unusually large daily fall by current standards, and it’s by no means certain that support there wouldn’t hold. Below that focus would return to the current range base at $1663.31.
4) Impact of Virus Outbreaks: S&P 500, Gold, Oil and Currency Analysis
The outbreak of the Wuhan Coronavirus has rattled financial markets across the globe, although much is unknown as to whether the outbreak will expand to a pandemic and what the size of the impact will be.
In order to gauge the potential impact of coronavirus, this article will compare previous virus outbreaks and trends across the S&P 500, major commodities and currencies.
With that said, we are cognizant to the fact that China is more connected to the global economy, contributing a growing proportion to world GDP (~20%) compared to 2002-03 (~5%) when SARS broke out. Furthermore, the mortality rate of the Coronavirus is materially lower than SARS at 2-3% vs 9.6%, which has eased concerns.
However, it is quite clear that there are increasing concerns about Coronavirus as it continues to spread, and this is reflected in the chart below. The data shows that the rising number of searches in Google is at its highest on record, surpassing the peak in 2009.
Across equity markets, S&P 500 generally performed better against its counterparts during virus outbreaks, while the DAX 30 had been the most negatively impacted during the SARS outbreak. However, despite equity markets initially coming under pressure, weakness was typically temporary with global equity markets showing a sharp recovery. Alongside this, the most adversely effected stock markets tended to show the strongest rebound.
During the SARS outbreak, the spillover onto G10 currencies had been limited at best as the larger focus for investors had been on the global macro backdrop. This had been the global reflationary story as economies came out of the recession that took place in the early 2000s.
As such, given that the global economy had been early in the economic cycle, notable out performance had been observed in the AUD, CAD and NZD during the SARS episode (macro backdrop matters). Subsequently, this also helps explain the modest gains in the Euro and Pound, while the US Dollar had been under pressure. Similarly, safe-haven currencies (JPY, CHF) saw little in the way of notable movement during the outbreak.
LEGAL: This website is operated by Promax which is the trading name of Promax LLC incorporated under the laws of Saint Vincent and the Grenadines with company number 156 LLC 2019 having its registered office at First Floor, First St. Vincent Bank Ltd. Building, James Street, Kingstown, VC0100, St. Vincent and Grenadines. The Company is authorized as a Limited Liability Company under the Limited Liability Companies Act, Chapter 151 of the Revised Laws of Saint Vincent and Grenadines, 2009.
Risk Warning: Forex and CFDs are leveraged products and involve a high level of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent advice if necessary. By accessing this website you agree to be bound by the below pertaining to both this website and any material on it. Promax reserves the right to change these terms at any time without notice to you. You are therefore responsible for regularly reviewing these terms and conditions. Continued use of this website following any such changes shall constitute your acceptance of.
Restricted Regions: Promax does not offer its services to residents of certain jurisdictions such as USA, Japan, Iran, Cuba, Sudan, Syria and North Korea.
Copyright © 2020 Promax. All Rights Reserved.