Daily reviews

03.02.2020

Coronavirus continues to take center stage in global markets

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Global stocks kept bleeding as coronavirus spreading further

  • Global stocks kept bleeding as coronavirus spreading further
  • The WHO has declared coronavirus a public health emergency
  • Dollar turned sharply lower on Friday after a risk-off rally
  • EURUSD recouped earlier losses and turned positive for the week
  • The Fed left rate unchanged and offered no new guidance on balance sheet
  • Oil prices continued to suffer losses amid demand concerns
  • OPEC+ to hold technical meeting February 4-5

Asian equities

Asian stocks dipped dramatically last week, as the spread of coronavirus weighted on investor sentiment. As a result, Hong Kong stocks plunged nearly 6%, with Hang Seng Index closed Friday 0.5% lower. South Korea's Kospi lost nearly 1.4% on Friday, pushing its weekly loss to 5.7%. Japan's Nikkei 225 finished 1% higher on Friday, but down for the week. The stock market in China was closed all week for the Lunar New Year holiday, with local authorities extending the shutdown, citing the coronavirus outbreak.

The World Health Organization has declared coronavirus a public health emergency of international concern as the virus which originated in central China, has now spread around the world and more than 200 people are dead and more than 9,600 people have been infected.

On the data front, China's purchasing managers index for manufacturing reached 50 in January, lower than 50.2 previously but in line with what analysts expected. Non-manufacturing PMI rose to 54.1, which was above December's 53.5.

US equities

US stocks had a turbulent week and suffered decent losses as the spreading coronavirus outbreak fanned fears about global economic growth. The Dow Jones Industrial Average plunged more than 600 points Friday, the steepest one-day loss since August. S&P 500 and Nasdaq Composite declined more than 1.5%. moreover, all three major indexes saw their worst January in four years. In individual stocks, Boeing reported its first annual loss in more than two decades, as one of its aircrafts has been grounded world-wide.

On Friday, the stock markets felt the additional pressure from the economic front. The Chicago PMI declined to the lowest level in nearly four years, 42.9. The index not only arrived much lower than the 50 reading, separating growth from contracting but also came in well below expectations.

Currencies

Despite the FOMC policy meeting and a series of economic updates out of the United States, developments surrounding the coronavirus story were in focus last week. The greenback was mostly higher but suffered heavy losses on Friday after a rally and as a result, wiped out its previous gains. On the data front, U.S. new home sales dropped for third straight month in December, the Dallas Federal Reserve index for general business activity for January arrived at -0.2, core capital goods orders posted biggest drop in eight months, the Conference Board’s U.S. consumer confidence index rose to 131.6 in January from 126.5 in December while Richmond Fed manufacturing gauge surged to its best level since 2018. The international advance trade in goods deficit increased to $68.3B in December from $63.0B previously, advanced U.S. wholesale inventories for December were down -0.1% from November to $675.6B. December pending home sales fell 4.9% as supply hit a record low. Fourth-quarter GDP rose only 2.1% and full-year 2019 posted slowest growth in three years at 2.3%, unemployment rate remained at the 50-year low level of 3.5%. Employment cost index increased 0.7%, seasonally adjusted, for the 3-month period ending in December. Personal income increased 0.2% in December, as well as disposable personal income. Chicago manufacturing activity slumped in January to weakest reading since late 2015 while consumer sentiment unexpectedly improved in January. Meanwhile, Federal Reserve left its interest rate unchanged and offered no new guidance on balance sheet.

The dollar underperformed against the majors including the pound which managed to capitalize on the Bank of England decision. The central bank refrained from cutting interest rates at the latest monetary policy meeting and even hinted at a possible tightening in the future. As a result, GBPUSD jumped to three-week highs around the 1.32 handle and finished the week in the green. On Monday, the pair retreats partially, amid some overbought signals in the short-term timeframes. As for the EURUSD pair, the prices exceeded the 100-daily moving average and stopped just shy of the 1.11 handle which acts as the immediate resistance for the common currency. Should the pair confirm a break above the moving average, the technical picture will continue to improve further in the near term. on the other hand, as long as coronavirus fears persist in the markets, the USD downside potential will likely remain limited at the current levels.

Commodities

Oil prices accelerated the decline amid a widespread risk aversion due to the negative developments surrounding the China coronavirus. Also, weekly data from the American Petroleum Institute to January 24 showed an increase in crude oil stockpiles of 4.27 million barrels from 1.6 million the previous week. Meanwhile, the Energy Information Administration said on Wednesday that crude inventories rose 3.5 million barrels in the week to January 24 to 431.7 million barrels. U.S. gasoline stocks rose for a 12th straight week, growing by 1.2 million barrels to an all-time high at 261.2 million barrels. Meanwhile, oil production has hovered at 13 million bpd for three weeks now. On Friday, Baker Hughes reported that the number of oil rigs decreased for the week, by 1 rigs, bringing the total to 675.

Driven by concerns over the coronavirus, Brent crude accelerated the decline after a break below the 200- and 100-DMAs and registered early-August lows below the $56 handle by the end of the week. Despite there are oversold conditions in the charts, the prices could suffer further losses in the near term as demand concerns keep the market under pressure. On the positive side, OPEC+ members decided to hold a technical meeting this week, and the possible measures could curb negative sentiment in the market these days.