Risk Starts to Rebound

Posted on

Market Drivers January 28, 2020
Comm dollars remain at lows
Equities bounce
Nikkei -0.55% Dax n/a
UST 10Y 1.61%
Oil $53.1/bbl
Gold $1577/oz
BTCUSD $9046

Europe and Asia:
No Data

North America:
USD Durable Goods 8:30
USD Consumer Confidence 10:00

Risk rebounded slightly in Asian and early European trade with equity indices in Europe and US futures pointing to a higher open as short-covering kicked in and traders turned their focus away from the coronavirus story towards marquee earnings reports later today.

The coronavirus continued to multiply in China with the official count now at more than 4000 cases and more countries including the Philippines and Hong Kong are now restricting travel to and from the mainland as the virus shows no signs of slowing down.

There is little doubt that the virus is having a serious economic disruption in China and could have negative ramifications in Asia as a whole. Today Japanese authorities warned that the economic fallout from the coronavirus could have an impact on growth in Q1.

In Hong Kong Carrie Lam virtually sealed off borders with the mainland and created quarantine facilities as authorities grapple with the epidemic and her press conference sent equities off session highs as markets reacted to new safety measures that will all weigh heavily on trade and commerce.

In FX commodity dollar remained very weak with kiwi and Aussie trading near session lows as markets continued to price in the sudden slowdown in economic activity. There is now a better than even money chance that both RBNZ and RBA will cut rates at their next meetings especially if the situation in China worsens materially.

Still, despite the turmoil in Asia equity indices remained in the green with traders awaiting key earnings from Apple and AMD today with markets eager to get a read on near term demand. As we noted yesterday, some blowout numbers could ameliorate the panicky sell flows due to the virus fears but if the numbers are anything less than stellar equities could see a much steeper decline than most expect.

Boris Schlossberg
Managing Director

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