European equity markets largely lost ground yesterday as the coronavirus fears were reignited.
The Chinese authorities changed the methodology of the way they determine a case of infection for coronavirus, and the new method showed a large jump in the number of cases. It dawned on dealers that the situation is far worse than initially suspected. The result was that equities largely sold-off in Europe.
The FTSE 100 underperformed against its Continental counterparts given its relatively large exospore to mining as well as energy stocks – both industries are heavily dependent on Chinese demand. The DAX plus the CAC 40 ended the day in the red, but both markets finished well off the lows of the session, and that would suggest the fear factor faded a little. US markets closed slightly lower too, as health concerns hit market confidence.
The coronavirus crisis rumbles on but in the Asian session dealers were concentrated on trade. Dealers are waiting for Beijing to lower levies on $75 billion worth of US imports – a pledge they made last week. Stocks in mainland China are slightly in positive territory.
Last month the Federal Reserve made it clear they were not happy the inflation rate is well below their target of 2%. The central bank’s preferred measure of inflation is the core PCE metric, which is currently at 1.6%. Yesterday the CPI rate jumped to 2.5% from 2.3%, while the core reading held steady at 2.3%. The core update is deemed to be a better gauge of demand, so we might see demand hanging around these levels for a while.
The pound saw a surge in volatility yesterday on the back of the surprise announcement that Sajid Javid stepped down as Chancellor, and he was replaced by the less well-known Rishi Sunak. Dealers got over the shock of the news quickly, and the pound was pushed higher as the perception in the markets is that Mr Sunak is more likely to go along with Prime Minister Johnson’s pro-business agenda. The Budget will be announced next month and the view in The City is that it will be quiet favourable to the business community, hence why sterling jumped yesterday. The new Chancellor might deliver the ‘Boris bounce’ that has been talked about since the December election.
At 7am (UK time) Germany will post the flash GDP reading for the final-quarter. On a quarter-on-quarter basis, the reading is tipped to be 0.1%, which would be unchanged from the previous quarter. On a yearly basis, the reading is expected to be 0.2%, and that would be a big drop off from the 1% registered in the same period one year ago.
The eurozone flash GDP reading will be announced at 10am (UK time). Economists are expecting the quarterly reading will be 0.1%, while the annual level is predicted to be 1%.
The US retail sales report will give us a good idea of consumer appetite. The update is forecast to be 0.3%, which would be unchanged from the previous report. The report that strips out auto sales is expected to also be 0.3%, and that would be a big drop off from the 0.7% registered one month pervious. The figures will be published at 1.30pm (UK time).
The preliminary reading of the University of Michigan consumer sentiment reading will be posted at 3pm (UK time) and the consensus estimate is 99.5.
EUR/USD – has been pushing lower since late December and while it holds below 1.1000, the bearish move should continue. Support might be found at the 1.0800 area. A rebound might run into resistance at 1.1000.
GBP/USD – while it holds above the 1.2900 area the wider positive move should continue. A break above 1.3284 should pave the way for the 1.3500 area to be retested. A break below 1.2900 might pave the way for 1.2768 to be tested.
EUR/GBP – surged on Monday but while it holds below the 0.8538 mark, the broader bearish trend is likely to continue. A drop below 0.8387 might bring 0.8276 into play. Resistance might be found at 0.8600.
USD/JPY – has pushed higher and while it holds above the 50-day moving average at 109.30 the wider bullish trend should continue, and it might retest the 110.67 area. A move below 108.30 might put 107.65 on the radar.