Coronavirus triggers liquidation pressures and flight to quality

Intermediate
  • Global financial markets are now fully focused on the new geopolitical threat, the spreading coronavirus, with the Chinese New Year holiday extended into this week to try to assist in containing the virus.
Coronavirus
  • The global spread has broadly seen markets in “risk off” mode, seeing global stock averages plunge, whilst safe havens like US Treasury Bonds (and global bond markets) have rallied to multi-month high prices/ low yields,
  • In the Forex space, the safe haven Japanese Yen has also rallied (USDJPY lower), whilst the major commodity or “risk” currencies, the Dollar bloc of Australian Dollar (AUDUSD), New Zealand Dollar (NZDUSD) and the Canadian Dollar (USDCAD) have all been under negative pressures.
  • In the commodity markets, Gold has advanced with a flight to quality bid, whilst Oil has sold off, with base metals including copper in freefall.
Gold chart
  • Markets did see a brief “risk on” correction on Thursday, when the World Health Organisation (WHO) declared the virus a global health emergency, BUT indicated that measures were being put in place in China to contain the outbreak, and WHO did NOT recommend travel or trade restrictions.
  • However, with the further global spread of the virus, many travel bans and restrictions HAVE been put in place by countries, airlines and companies.
  • Earnings season has continued with broadly positive results in the US, with stellar outcomes for Apple (APPL), Tesla (TSLA) and Amazon (AMZN). Stock charts
  • But the concerns regarding the coronavirus spread has overshadowed these positive reports last week.
  • In the US, the Federal Reserve Open Market Committee (FOMC) left rates unchanged as expected at their meeting on Wednesday and market reaction was somewhat muted
  • The Bank of England Monetary Policy Committee left interest rates unchanged at their meeting on Thursday. Expectations were for a possible rate cut, and with rates unchanged the Pound (GBP) the posted a firm rebound versus both the US Dollar (GBPUSD higher) and Euro (EURGBP lower).
  • The U.S. impeachment trial looks to be moving towards an acquittal in the Senate, with the President surviving as markets had expected, therefore having negligible impact.

Key this week

  • The main geopolitical focus this week will likely be on updates regarding the spread of and danger from the coronavirus.
  • The Chinese New Year holidays are extended into this week, BUT the Chinese stock market is set to reopen on Monday 3rd February.
  • Central Bank activity sees the Reserve Bank of Australia (RBA) interest rate decision and statement Tuesday, then the RBA again publishing their Monetary Policy Statement on Friday.
  • The macroeconomic data spotlight will be on global Markit Manufacturing Purchasing Managers Index (PMI) data and US Institute for Supply Management (ISM) Manufacturing PMI on Monday, the New Zealand Employment report Tuesday, whilst Wednesday sees the Markit Services PMI data and US ISM Services PMI, plus US ADP Employment change.
  • Then on Friday we get the release of the always much-watched US Employment report (plus the Canadian Employment report).
  • Earnings season moves on and key to watch this week will be Alphabet/ Google (GOOGL) on Monday alongside BP PLC (BP) in the UK and Walt Disney (DIS) on Tuesday.
Date Key Macroeconomic Events
03/02/20 Chinese stock market reopens; Global Manufacturing PMI and US ISM Manufacturing PMI
04/02/20 Reserve Bank of Australia (RBA) interest rate decision and statement; New Zealand Employment report
05/02/20 Markit Services PMI data and US ISM Services PMI; US ADP Employment change
06/02/20 Nothing of note
07/02/20 US Employment report; Canadian Employment report

Editor in chief

Steve Miley has 29 years of financial market experience and as a seasoned expert now has many responsibilities. He is the founder, Director and Primary Analyst at The Market Chartist, the Editor-in...continued

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