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Europe called higher despite deepening health crisis, PMI reports in focus

Europe called higher despite deepening health crisis, PMI reports in focus

Stock markets in Europe fell yesterday as the coronavirus situation took a turn for the worst

The number of fatalities increased in China as did the number of confirmed infections. Reports circulated that more cities in China are on lockdown. There was reported case in Singapore, and a number of people in Scotland were tested for coronavirus. US stocks traded lower during the day but the S&P 500 managed to eke out a small gain.

The losses that were registered in Europe weren’t massive, but traders have long memories and the panic that was sparked on the back of the SARS crisis in the early 2000s still lingers. Should the health crisis get worse, the negative sentiment is likely to grow. Equity markets were very strong in advance of the situation so a pullback could be on the cards.

Overnight in Asia the mood remained cautious as the death toll in China increased. Markets in mainland China are closed on account of the Lunar New celebrations.   

The European Central Bank (ECB) kept interest rates on hold yesterday, and there were no surprises there. Christine Lagarde, the head of the ECB, said the growth outlook is still ‘tilted to the downside’ and that a loose monetary policy will be required for a ‘prolonged period’. A strategic review of the bank’s tools and objectives will be undertaken.

The oil market was hit hard yesterday. The energy has had a tough time lately. Once it was clear the US and Iran were not going to war, it quickly reversed the gains it made on the back of the heightened tensions. On Wednesday, the commodity tumbled after the head of the International Energy Agency, Fatih Birol, warned that an oversupply situation was on the horizon. The health crisis in China has been the latest story to knock oil seeing as the country is a major importer of commodity.          

Yesterday was a positive session for the assets that are deemed to be lower risk. Gold as well as the Japanese yen were in demand as traders sought out alternatives to stocks. The US dollar index moved higher too, which made gold’s upward move all the more impressive, as there is often an inverse relationship between the two markets.

At 8.15am (UK time) the French flash manufacturing and services PMI reports will be posted, and economists are expecting 50.6 and 52.2 respectively. The German updates are expected to be a mixed bag, where the manufacturing reading is tipped to be 44.5, while the services update is expected to be 53. The reports from Germany will be posted at 8.30am (UK time).  

Given the speculation the Bank of England might cut rates next week, the UK PMI reports will be closely watched. The figures will be posted at 9.30am (UK time). The flash services report is expected to be 51, and the manufacturing reading is tipped to be 48.9.    

EUR/USD – has been pushing lower since late December and while it holds below the 50-day moving average at 1.1096, the bearish move might continue. Support might be found at the 1.1000 area. A break above 1.1172 should pave the way for 1.1239 to be retested.

GBP/USD – while it holds above the 50-day moving average at 1.3036, the wider bullish move should continue. The 1.3500 area might act as resistance. A break below the 1.2900 area could bring 1.2689 – 200 moving average, into play.  

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 – while it holds above the 50-day moving average at 109.14 it could target 110.67. A move to the downside might encounter support at 109.00.   





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