- Recent losses in risk assets may be temporary
- Investors ponder if virus will undermine global economy
- Dollar, Gold could find support if epidemic worsens
Most Asian stocks and currencies are up on the day, even as investors grapple withthe extent of the coronavirus outbreak and its potential implications for the global economy. While it is still early days, the reported cases of the virus have evoked fears of a repeat of the 2003 SARS epidemic.However, amid hopes that the authorities in affected countries are better equipped this time around following other epidemics over the years, the losses in risk assets should prove transitory as long as investors’ fears can be reined in.
This outbreak is sure to test the risk appetite of investors who have already overcome the flare-up in the US-Iran conflict earlier this year. However, should the World Health Organization label this outbreak as an international public health emergency, that could exacerbate further losses in riskier assets while boosting demand for safe havens. If the authorities around the world show signs of failing to contain the coronavirus for an extended length of time, we could then see a sustained risk-off period in the markets.
Dollar traders keep watchful eye over Trump impeachment trial, virus outbreak
While the Dollar index (DXY) has recovered from the oversold conditions seen at the onset of 2020, it still appears subdued below the 200-day moving average for the time being, as its downward trend since October is showing signs of levelling out.
The Dollar and US equities have offered scant reaction to the impeachment proceedings against US President Donald Trump thus far. If the trial in the Senate unveils any material information that threatens policy continuity, financial markets may react negatively to the added uncertainty. Given the Greenback’s status as a safe haven asset, the Dollar could however find near-term support if the fallout from the coronavirus outbreakis reflected in the hard data and threatens the stability of major economies.
$1600 within reach for Bullion if virus concerns escalate
Gold has quickly given up its recent gains following initial reports of the coronavirus outbreak, with Bullion moderating back below the$1560 psychological level. The case for Gold breaching and staying above $1600 will become stronger if there are more widespread cases of the coronavirus, coupled with lingering concerns over geopolitical risks. However, once such fears subside and investors can refocus on the global economic recovery, Gold is then expectedto moderate over the course of the year.
