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China data helps calm nerves of health emergency

China data helps calm nerves of health emergency

Stock markets in Europe lost major ground yesterday on the renewed fears about the coronavirus. The health crisis worsened in China, which fuelled the selling pressure.

Many European listed companies have sizeable exposure to the country in question, so dealers were quick to dump those stocks. Travel, mining, consumer as well as energy stocks witnessed sizeable declines.

The FTSE 100 was also under pressure from the rally in the pound. The Bank of England (BoE) voted 7-2 in favour of keeping rates on hold. On the run up to the meeting, there was talk the BoE could lower rates, and for all the chatter, a big majority of central bankers voted to keep rates unchanged. The news drove up the pound, adding to the bearish move on the London market.

The World Health Organisation changed their view last night, as the organisation declared the coronavirus situation a global health emergency. At the time of the announcement, there were in excess of 8.200 confirmed infections around the world.

Overnight China announced a couple of important economic indicators. The manufacturing PMI reading was 50.0, meting forecasts. The previous level was 50.2. The non-manufacturing PMI level came in at 54.1, while the consensus estimate was 53.1, and keep in mind the prior reading was 53.5. The largely positive updates helped bring some calm to stock markets in Asia. The Hang Seng and as well as the Nikkei 225 are in positive territory despite the deepening health crisis in China – where the death toll has risen again.   

The advance reading of US GDP for the fourth-quarter was 2.1%. Not only did the reading meeting forecasts, it also was unchanged from the previous quarter. With growth rates like that, you can see why the Fed appear to be content to keeps rates on hold for the time being. The major US indices closed slightly higher last night as the markets staged a comeback.

The China connection is proving costly for commodities as WTI, Brent crude plus copper all fell to levels last seen in October. Dealers are exiting the markets as they feel the nation’s appetite for them will wane on account of the health crisis.

At 7.45am (UK time) the French CPI rate is expected to increase to 1.7% from 1.6%. It is worth noting that German CPI rate edged up to 1.6% from 1.5% yesterday. The eurozone flash CPI reading is expected to increase to 1.4% from 1.3%. Conversely, the core reading is tipped to slip to 1.2% from 1.3%. The ECB are aiming to drive up the headline CPI rate to close to 2%. The inflation reports will be posted at 10am (UK time).

UK mortgage lending and mortgage approvals are tipped to be £4.1 billion and 65,700 respectively. The reports will be posted at 9.30am (UK time).

During the week the Fed kept rates on hold, meeting forecasts. The US central bank would also like to push up inflation to near 2%. The Fed preferred inflation gauge is the core PCE rate. The level is expected to hold steady at 1.6%. It will be published at 1.30pm (UK time).

The Chicago PMI report will be posted at 2.45pm (UK time) and the reading expected to be 48.8. Shortly after, the final reading of the University of Michigan consumer sentiment is tipped to remain on hold at 99.1.                

EUR/USD – has been pushing lower since late December and while it holds below the 50-day moving average at 1.1094, the bearish move might continue. Support might be found at the 1.0900 area. A break above 1.1172 should pave the way for 1.1249 to be retested.

GBP/USD – while it holds above the 50-day moving average at 1.3057, the upward move should continue. 1.3284 might act as resistance. Support might be found in the 1.2900 area.

EUR/GBP – remains in the wider downtrend and if the bearish move continues it might retest 0.8400. A rebound might run into resistance at 0.8600.   

USD/JPY – has been pushing lower recently and while it holds below the 50-day moving average at 109.18, the bearish move should continue. 107.65 might act as support. If the wider positive trend resumes, it might retest the 110 00 zone.     




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