Equity falls alongside with oil, gold soars

US equities pulled back for a third day as markets ramped up pricing in the impact of Covid-19 with the number of new cases climbing fast in Japan and South Korea.

The S&P 500 dropped 1.05% on Friday, dragged by consumer discretionary (-1.44%), information technology (-1.22%), energy (-0.89%), communication (-0.84%) and financials (-0.45%).

The selloff came in despite strong US existing home sales figures, which stood at 5.46 million in the month of January. Home sales release gives a good indication as to the health of the US housing market, as its ripple effects would boost consumption, renovation and banking business. The resilience of the US economy suggests that the US dollar will be a favoured asset for the time being, due to both its safe-haven character and yield.

Crude oil prices retraced for a third day as ‘risk-off’ sentiment is back in control again. The escalation of new virus cases and increased death toll outside of China is inhibiting global energy demand, with a significant supply surplus expected in the first quarter. OPEC+ and Russia will need to figure out the trade-off between output cut and tepid oil prices. A continuous strengthening of the US dollar recently also exerted downward pressure over crude prices.

Gold price soared to US$ 1,680 – its highest level seen since March 2013 – before it came off to US$ 1,660 this morning. Still, the rally in gold price dwarfed other asset classes in the past two weeks, as traders are increasingly betting on easing monetary measures to be carried out by central banks around the globe. Uncertainty brought about by the Covid-19 also added to the demand for safety.

Technically, gold price has been temporarily overbought and an immediate resistance level can be found at around US$ 1,677 area (100% Fibonacci Extension). A pullback from recent high could point to a retracement towards US$ 1,647 area (78.6% Fibonacci Extension)

Asia-pacific markets opened broadly lower on Monday, as sentiment was dampened by the US selloff, Covid-19 concerns and lower oil prices. South Korea on Sunday has raised the threat of coronavirus on the highest possible alert, which will enable the government to lock down cities and take strong measures to contain the spread.

This could serve as a ‘wake-up’ call for Japan and other Asian economies, which are vulnerable against the impact of the virus. This will also put the hosting of Tokyo summer Olympic Games under scrutiny, as Japan now has the highest number of infections outside of China alongside an ageing population.

US SPX 500 – Cash