Damage assessment
It wasn’t a pretty sight in Asia with a large majority of the investment community unnerved by the lethal mix of light liquidity conditions, extended Chinese New Year holidays, and growing fears that containment of the devastating Coronavirus by Chinese authorities is failing miserably.
The fact that confirmed cases have now surpassed 4,500 across four continents and the death toll has risen to 107 in the span of some eight days, suggests global economic output could take a bigger hit than initially expected, putting the thesis of a material global growth rebound firmly on the chopping board.
As risk appetite clearly struggles to overcome its low visibility of the Coronavirus’ murky forward path, it’s undecided whether the virus can manifest into something far more aggressive than the SARS 2003 outbreak – though, at this rate, it’s likely to exceed 2003 infection levels by month-end. Incredible when you consider the 2003 SARS outbreak was a multi-month slow burn.
Overnight, it was a classic case of risk-off. Safe-havens (JPY, CHF, Gold and US Treasures) were flooded, volatility found some spark and money was taken off the table as investors mulled the unknown cost and true magnitude of the Coronavirus. Though, walking into Europe, risk-off flows have since settled with investors possibly turning their attention to the flurry of major earnings reports that perhaps might stabilise waning risk appetite.
Europe steady
This sees European equities point up and ready to recover a punitive portion of yesterday’s significant losses in early trading. FTSE eyes a slight 19pt recovery at the open, while DAX is poised to nudge ahead by 52pts, still some distance below all-time highs.
GBPUSD failed to partake in the global risk sell-off seeing as the BoE’s meeting on Thursday represents a bigger drawcard for Sterling traders. It’s likely to remain pegged near the 55d-MA as markets await the BoE’s highly anticipated rate decision.
CBI Retailing Reported Sales at 11:00 GMT for January should give further colour over the state of the UK consumer. As a reminder, in December, retail sales missed quite heavily to the downside putting GBP on the back-foot, however, data here may reflect improved sentiment following the UK election.
Elsewhere, Crude remains subdued trading below US$60/bbl as oil demand expectations take a hit from widespread negative tourism impacts. Airports, airlines and travel operators have been worst effected across major equity benchmarks, and should continue to feel the full force of the health crisis in a risk-off environment.
Earnings stabiliser
Walking into Europe, it seems markets are a bit more settled with S&P 500 and Nasdaq futures trading above session lows and edging back closer to major levels. While they haven’t exactly closed the weekend’s gap down, it is a promising sign that investors might be slightly optimistic that the strength of US reporting season could drown out Coronavirus fears.
Some major companies expected to report pre-market include 3M, Lockheed Martin, Pfizer, Paccar, United Technologies, Xerox and SAP.
Some major companies expected to report post-close include LVMH, AMD, Apple, eBay, Starbucks.
Of these, LVMH, the behemoth luxury goods company which boasts a portfolio that includes Louis Vuitton, Fendi and Christian Dior among many others, will be of significant focus for investors given recent Coronavirus troubles. The Parisian listed stock has fallen some ~10% from January highs.
