Financial market research and analysis

China authorities have been under-stating reported cases of the coronavirus. A new methodology of diagnosis is apparently behind a sudden spike in the cases and deaths resulting from the coronavirus on Thursday. The top Communist party official in Hubei Province has been sacked for mis-handling the crisis. Elsewhere a 14^th case was reported in the US and the Mobile World Congress, one of the largest tech conferences has been cancelled because the virus “made it impossible.”

EQUITIES

If the basis for the recent stock market rally was a slowing infection rate of the coronavirus, then it may have happened on false pretences. The virus appears to be much more contagious than previously known. The probability of a pandemic that could cause panic in markets has grown. Markets are already adjusting to the new reality with shares in Asia falling and havens like gold and US treasuries rising. However, losses are limited for now. If this new methodology means detection methods have improved and if the spike in the number of cases is a one-off, then a larger market sell-off might be averted.  

Wall Street hit record highs on Wednesday, bolstered by a slowdown in new cases of coronavirus, which we now know wasn’t true. All three US equity benchmarks closed at record highs, rising 0.6-0.7%. So too did the Euro Stoxx 600, up 0.6%. Germany’s DAX touched a record intraday high. The FTSE 100 rose to its highest in three months.

MGM Resorts, whose resort in China’s Macau has been shut down because of the virus has scrapped its 2020 earnings guidance and its CEO will step down. The timing of any recovery in the individual equities hardest hit from coronavirus fears now looks father off. This includes luxury goods, airlines as well as casino shares.

FOREX

The euro has sunk to its weakest level since 2017 after falling below last October’s low. The euro is the main counter-currency to the dollar that is receiving haven flows because of the coronavirus. Economically Europe would likely take a bigger hit from coronavirus than the US. The specific trigger for the 2 ½ year low can probably be laid at the door of new ECB President Christine Lagarde. Lagarde defended the central bank’s stimulus programs to EU parliamentarians which suggests to us the strategic review will not result in any policy change that results in a less accommodative stance.

COMMODITIES

The price of oil is slipping again after a two-day gain. OPEC has reduced its forecasts for oil demand across the whole of 2020, these are in addition to forecast cuts already made in January. The lowered forecasts from OPEC and the IEA on top of the news of more coronavirus cases is pressuring oil lower. The silver lining to all the bad news for the oil market is that it may force the reluctant hand of Russia to support OPEC+ output cuts.