Financial market research and analysis

According to Chinese health officials there are 2,744 coronavirus cases and 80 deaths- and it has been confirmed the virus can spread before symptoms become visible.

EQUITIES

European stocks are headed for a sharply lower open on Monday. Fears are growing at the speed by which the coronavirus that started in China has spread to the US and Europe. US futures point to a difficult open on Wall Street in week where tech titans including Apple report quarterly earnings.

Any selling will be concentrated into the global markets that are open. Stock markets in China, the epicentre of the coronavirus outbreak as well as Hong Kong, South Korea and Australia are closed. Putting the human tragedy aside, from a cold markets perspective the coronavirus might serve the purpose of taking some of the heat out of a market that has been rising rapidly for months.

Shares and sectors exposed to China or travel and leisure were big underperformers last week. Mining companies, airlines IAG and EasyJet and HSBC were all laggards last week on the FTSE 100. Shares of China’s Alibaba dropped 6% last week when other tech firms like Apple fell just 1%. While the virus spread these shares will be under pressure but will also see the biggest short covering rallies if concerns ease.

FOREX

The five-day countdown to Brexit starts today, but more important for the British pound is the Bank of England decision the day before. We don’t see the Bank of England cutting rates in January, or at all in 2020 but the decision for some policymakers is on a knife edge. There is data to support either view. We’d expect GBPUSD to hover around 1.30 until the BOE decision on Thursday.

The only data of note today is from Germany where IFO surveys are expected to paint a rosier outlook from German businesses. The ‘Expectations’ gauge is expected to rise from 93.8 to 95 as easing trade tensions open up better prospects for German heavy industry. The brighter outlook from German businesses won’t necessarily improves the prospects for the euro. The euro fell out of bed following an ECB meeting that lacked any clarity and seemed to kill any idea that the current strategic review would see negative interest rates or QE reversed. With EURUSD just above 1.10, a retest of Septembers low at 1.09 looks likely.

COMMODITIES

Gold is on the move on Monday. Gold futures gapped higher over concerns about the spread of the coronavirus but have since pared the gains after reaching above $1585 per oz. If the Fed at is monetary policy meeting on Wednesday use the same kind of cautious language heard by the ECB and BOC, then that could be the rocket fuel gold needs to sustain gains above $1600 per oz.

The slide in crude oil prices has continued at the start of the new week. Losses in Brent crude have accelerated since breaking below $60 per barrel on Friday. Speculators long crude oil seemed to have given up the ghost since geopolitical tensions, which under other circumstances would have pushed prices materially higher, failed to do so. In Brent the next major support is between $55 to $56 per barrel, the matching lows from August and October last year.