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27.01.2020

Weekly market overview: China virus outbreak sent stocks lower across the markets

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Concerns over a China coronavirus drive global markets lower

  • Concerns over a China coronavirus drive global markets lower
  • Dollar gains against high-yielding counterparts amid risk aversion
  • Oil plunges amid spreading worries about demand, global economy
  • Euro at early-December lows ahead of the FOMC meeting
  • Investors will temporarily shift focus to central banks, economic data

Asian equities
Most Asian stock markets ended lower on Friday. Despite the Chinese authorities stepped up measures to contain the virus that has infected more than 2,700 people and killed 80 people in the country, concerns over an escalating coronavirus outbreak bruised risk sentiment globally. The World Health Organization declared a health emergency for China but stopped short of declaring an international health emergency. Trade volumes were low across Southeast Asian markets as the week-long Lunar New Year holidays began.

On Friday, the Japanese stocks managed to close higher and thus trimmed weekly losses after the release on fresh economic data. Domestic inflation accelerated last month but remained well below the 2% target. In particular, consumer price inflation accelerated to 0.8% from 0.5% previously versus a forecast of 0.7%. Australian markets ended a nervous week in the green due to a rally in healthcare stocks which helped to offset losses in the mining sector. The markets in Australia, China, Hong Kong, Malaysia, Singapore, South Korea and Taiwan were closed for public holidays.

US equities
U.S. stock markets plunged on Friday, as widespread concerns over the deadly coronavirus in China outweighed some bullishness amid solid corporate earnings results. Also, some negative sentiment came from IHS Markit data, as the latest estimate of the US manufacturing business activity pointed to further weakness in the sector. The S&P 500 and Dow each ended the week lower by about 1%. The Nasdaq fell by 0.8% on the week. The official number of China coronavirus cases was at 2,744 Monday morning, with 80 confirmed deaths. Against this backdrop, the sell-off may continue at the start of a new trading week.

In individual stocks, Apple shares hit a record high om Friday after Wall Street analysts revealed their bullish assessments of the company. As a reminder, in January, Morgan Stanley, Credit Suisse and Argus Research raised their price targets on shares of Apple.

Currencies
It was another mixed week for the dollar, but in the result, the US currency was higher amid mostly upbeat economic updates coupled with widespread risk aversion amid increasing fears over the coronavirus. Despite this, sterling managed to escape losses due to fading rate cut expectations ahead of this week’s Bank of England meeting. On the positive side for the greenback, U.S. Treasury Secretary Steven Mnuchin said that the U.S. economy may grow faster this year than many projections, as he dismissed arguments that fiscal policy could become a drag on growth. Later in the week, Mnuchin pointed to the need in cutting government spending and shrinking deficits. Treasury Secretary also said that White House has started work on second round of tax cuts to boost growth.

On the data front, Philadelphia non-manufacturing business outlook survey pointed to further expansion in the region. U.S. existing home sales rose to near a two-year high, Chicago Fed national activity index turned negative last month. FHFA house price index was up 0.2% on a monthly basis in November and up nearly 5% from last year. Weekly jobless claims rose modestly and thus confirmed a solid state of the labor market. The Conference Board leading economic index declined 0.3% to 111.2 in December after a rise by 0.1% previously. Flash US services business activity index arrived at 53.2 versus 52.8 in December, while flash US manufacturing PMI came in at 51.7 versus 52.4 previously.

As the data was mostly positive and risk aversion prevailed, EURUSD registered the fourth week of losses in a row and dipped to early-December lows around 1.10 on Friday. During the sell-off, the pair broke below the 100-DMA. As a result, the technical picture has deteriorated further. It is possible that the euro will regain some ground this week should the FOMC meeting outcome disappoint dollar bulls. On the other hand, the upside potential will likely be limited by the persistent concerns over a China virus spread. >/p>

Commodities
Crude oil prices declined sharply over the week, with Brent crude falling to $60.24 per barrel, the lowest in nearly two months. Moreover, after the worst week since July, the futures extended losses on Monday and dropped below $60, to fresh lows around $58. The increased pessimism was due to fears that China's coronavirus outbreak may dent crude oil demand. Against this backdrop, traders dismissed Libyan supply interruptions. On Thursday, the U.S. Energy Information Administration reported that crude oil stockpiles declined by 400,000 barrels for the week ending January 17, but the market failed to capitalize on the release as China virus remained in focus. Besides, Baker Hughes said the number of U.S. oil rigs rose by three this week to 676, which added to the bearish pressure in the market.