Erratic theme as “risk on” tries to resurface in face of coronavirus fears

  • Global financial markets remain fully focused on the spreading coronavirus, with a very erratic tone.
  • As we highlighted in last week’s Macro Watch the global spread of the virus had seen financial markets in “risk off” mode for latter January and into early February with global stock averages plunging lower, whilst safe havens (like U.S. Treasury Bonds and global bond markets) rallied.
  • However, the bias then shifted back to more of a  “risk on” theme last week to start February, with global stock indices recovering, US averages hitting new all-time highs, whilst in the Forex space, the safe haven Japanese Yen sold off (USDJPY higher), whilst commodity currencies, the Australian Dollar and New Zealand tried to rebound.
S&P 500
  • This was driven by positive global Markit Manufacturing and Services Purchasing Managers Index (PMI) data and also from the U.S. Institute for Supply Management (ISM) Manufacturing and Services PMI, PLUS tariff cuts from China on U.S. goods, alongside optimism around a virus cure and waning fears as the coronavirus spread seemed to be contained.
China Tariff Cuts
  • However, a renewal of fears at the end of last week regarding the virus spreading, alongside a negative reaction from US equity markets from the strong US Employment report on Friday, sent markets back to “risk off” mode to end the week.
  • The strong U.S. Employment report Friday, with the Non-Farm Payroll data posting a far better than expected 225K, could possibly leave the Fed on hold for longer, but likely reducing the chances of a rate cut in Q1 2020, which was possibly seen as disappointing by stock indices (is another rate cut priced into stocks).
  • AUDUSD and NZDUSD were particular casualties, with AUDUSD hitting a multi-year low.
  • The U.S. impeachment trial concluded with President Trump acquitted, as markets had expected, having negligible impact on asset prices.

Key this week

  • The geopolitical focus remains on updates regarding the spread of and danger from the coronavirus.
  • Central Bank activity is focussed on the Tuesday and Wednesday Semi-annual Monetary Policy Reports from Federal Reserve (Fed) Chair Jerome Powell to Congress.
  • Plus, Wednesday’s Reserve Bank of New Zealand (RBNZ) interest rate decision, statement and press conference
  • The macroeconomic data spotlight will be on UK Gross Domestic Product (GDP), plus Industrial and Manufacturing Production on Tuesday, German and U.S. Consumer Price Index (CPI) Thursday, then Friday brings German and E.U. GDP, U.S. Retails Sales and the Michigan Consumer Sentiment Index.
Date Key Macroeconomic Events
10/02/20 Nothing of note
11/02/20 UK GDP, Industrial and Manufacturing Production; Fed Chair Jerome Powell testifies to Congress
12/02/20 RBNZ interest rate decision, statement and press conference; Fed Chair Jerome Powell testifies to Congress
13/02/20 German and U.S. CPI
14/02/20 German and E.U. GDP, U.S. Retails Sales and Michigan Consumer Sentiment Index

Steve Miley

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

Comment on this video

Your email address will not be published. Required fields are marked *

Latest Related News

Reversals in Euro (EURUSD) and Dollar Index (DXY) still to be confirmed

Dollar-Yen breaks up (USDJPY)Aussie breaks down (AUDUSD)Euro-Pound holds key support (EURGBP) Continued

The US Dollar is King!

Global financial markets remain fully focused on the coronavirus, with the spread outside of China becoming of growing concern, notably in South Korea and Japan. There has been shift in price action over the past week, however, as global stock averages continued to climb to new cycle and record highs, but at a slightly slowing pace, punctuated by some jittery, rapid selloffs.In fact, the selloffs… Continued

US Dollar is King as USDJPY surges (USDJPY forecast)

A surge for USDJPY over the past 24 hours has reflected both the growing “risk on” theme and a technical breakout to a multi-month high.This has reinforced the US Dollar as “King”, with the US currency already braking to multi-year highs versus the Euro and Australian Dollar in February.The risk is now for further USDJPY gains into month-end and possibly into March. USDJPY day trade… Continued

Riskier assets stay strong, as coronavirus fears ebb

As we highlighted in last week’s Macro Watch, global financial markets remain fully focused on the coronavirus.Although markets remain on edge, the underlying theme of “risk on” continues to dominate, although punctuated by brief spells of “risk off” with quick, usually brief corrective moves.This was best highlighted last week when during an erratic 24-36 hours for financial market assets, we saw a shift back to… Continued

Euro approaches major support zone (EURUSD)

EURUSD bearish and aims at key supportAussie breaks down (AUDUSD)Cable bear signal  (GBPUSD) Continued

Forex Brokers in your location