By Deepta Bolaky
The virus is adding another layer of risk to an already fragile environment. Markets have been finding support on certain measures adopted by China and other governments to contain the spread:
As the outbreak within China is worsening, particularly in the Hubei province, the death toll rises above 800 and has surpassed SARS. Investors will likely monitor the effectiveness of these measures over the next couple of weeks.
China is also facing backlash over the initial cover-up of the deadly virus. Amid a wave of anger and outpouring grief around the death of the 34-year-old doctor who warned about the coronavirus, China’s anti-corruption agency was forced to send a team for a comprehensive investigation to calm the nation.
The uncertainty around the virus could hurt risk appetite to the benefit of haven assets in the short term. We expect demand for haven assets like the Japanese Yen, Swiss franc, US dollar and Gold to grow with any escalation in the coronavirus outbreak.
Investors are taking note of the significant risks in the Eurozone area. The bloc’s economy only grew by 0.1% in the last quarter while Italy and France contracted. The overall slow growth combined with the prospects that certain members might fall into recession is casting doubts on the overall outlook for the bloc.
The European Commission’s economic growth forecasts could be a market-mover. Amid growth concerns, it is reported that Eurozone finance ministers are set to discuss a more growth-friendly fiscal policy while also keeping in mind the EU fiscal rules and budget deficit limit of 3%.
German’s GDP will also be closely monitored as the eurozone’s largest economy, continues to be a source of worry. Industrial Production dropped by 3.5% in December fuelling fears of a recession. Any contraction in the GDP figures will exacerbate fears.
The bearish oil reports and demand concerns overshadowed supply disruptions in Libya. China, the world’s largest oil consumer, is at risk of facing further slowdown amid the virus outbreak and is fuelling demand-growth fears.
WTI tumbled more than 10% over the past couple of weeks and briefly fell past the psychological level of $50. After bottoming to the lowest level seen in more than a year, WTI and Brent Crude pared some losses following discussions of deeper production cuts.
In the coming days, oil traders will eagerly wait for Russia’s decision on whether to join OPEC for further output cuts in response to the coronavirus outbreak.
Amid several central bank speeches and data, inflation figures will dominate the economic events. Jerome Powell will testify on the semi-annual Monetary Policy Report to the Congress at the beginning of the week.
The Fed is on a wait-and-see approach and improving data is unlikely to cause a change in sentiment. However, investors will look for more clues to see if the Fed will or have reason to be less dovish.
The Statement, along with the Retail Sales and CPI figures, will help investors gain further insights on the US economy and monetary policy.
|Tuesday, 11 February 2020|
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