Can Risk Reverse in US?

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Market Drivers January 27, 2020
Comm dollars sink
IFO mkisses
Nikkei -2.03% Dax -2.107%
UST 10Y 1.61%
Oil $52.1/bbl
Gold $1583/oz
BTCUSD $8640

Europe and Asia:
EU IFO 95.9 vs. 97

North America:
No Data

A massive risk-off day in global markets today as with European and Asian bourses off by more than 2% while in FX commodity dollars suffered the most on fears of the spread of the coronavirus which threatens to become a pandemic in China weighing heavily on global growth.

Over the weekend the news of growing infections in Wuhan has exploded as doctors learned more about the virus. This particular strain could have an incubation period of up to 14 days and most troubling of all can sometimes present without symptoms such as high fever. The R0 which is the ratio of transmission is currently calculated as high as 2.5 which suggests that the virus may have already infected more than 100,000 people although the Chinese government has only confirmed slightly less than 3,000 cases.

In any case, the coronavirus story is sure to be with us for months to come and that is likely to severely hamper Chinese economic growth as the county effectively goes into countrywide quarantine with transportation and commerce coming to a halt. The impact of the pandemic would be truly disastrous is the virus began to spread worldwide but for now the focus is primarily on China as the world’s second-biggest economy struggles to control the outbreak.

Meanwhile, on the economic front, the IFO survey out of German disappointed traders coming in at 95.7 versus 97 eyed as business optimism in Europe’s largest economy remained muted and that hurt EURUSD which tumbled to a low of 1.1015 before finding some support.

In North America the calendar is barren but all focus will be on the North American open as markets await to see if US traders will reverse the selling flows. This week brings an array of key earnings releases as well as the Fed meeting and the bulls hope that a combination of accommodative stance by the Fed and strong results from the FANGS will stop the selloff. However with equity markets at such lofty valuations, if earnings do not bring good news this week, the correction could quickly turn into a rout as late longs run for the exits.

Boris Schlossberg
Managing Director

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