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Dow Jones erases YTD gain as virus fears spread

Dow Jones erases YTD gain as virus fears spread

Three major US indices tumbled more than 1.5% on Monday, as a rapid increase in the number of novel coronavirus cases are found in many countries around the world.

Confirmed cases in China surged to over 2,900 as at this morning. There are more than 5,700 suspected cases found within China and 82 patients have died from the disease. China’s government has taken unusual measures to contain the spread of the disease, including cutting off all public transportation within the province of Hubei, postponing a national-wide CNY holiday until 2 February; minimising public gatherings around the country and sending over 3,000 medical staff to Wuhan. Travel within and out of China is likely to drop considerably for the next couple of months.

These measures are carried out at an extreme time and perhaps, at no choice, as the adverse economic impact is enormous. All sectors are likely to be impacted by the delay in work post-CNY, especially transportation, tourism, entertainment, consumer discretionary, retail and commercial properties. On the other hand, healthcare, medicine, consumer staples, hospitalisation and construction sectors are likely to outperform the benchmark.

With much uncertainty, capital was flown into safe-havens again, including gold, yen, treasuries and the US dollar. The gold price advanced to $1,581 this morning, reaching a three-week high. Uncertainty surrounding the severity and longevity of the coronavirus is likely to boost demand for gold for an extended period of time.

The price of palladium, on the other hand, has fallen from a recent high of $2,400 to $2,200. This might be due to the prospect of reduced demand for automobiles within China over the next couple of months as consumers cut back travel plans and delay vehicle purchase.   

A fifth confirmed case was been identified in Singapore last night, with another 98 suspected cases found in the city-state. The Singapore dollar fell sharply against the US dollar to 1.3576, reaching its lowest level since 12 December. As a highly populated city with close economic connections to China, Singapore’s economy is likely to face adverse headwinds as well.

Crude oil prices extended decline for a sixth trading day, due to the broad ‘risk-off’ sentiment and the prospect of reduced energy demand from China. Technically, Brent crude oil remains in a bearish trend, and immediate support level can be found at $56.5.

Technically, the S&P 500 index has broken down its SuperTrend (10,2) and its ascending channel, signalling more downside to come. Its immediate support level can be found at 3,249 and then 3,165 points.

US SPX 500 - Cash chart


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