Virus Jitters Pressure Sentiment

The latest market highlights and our views on the key developments as risk sentiment remains pressured by coronavirus concerns; German sentiment figures disappoint; and a busy slate of US data awaits

Previous Day's Market Highlights

Coronavirus Concerns Continue

At the moment, to be an effective market analyst, it would help to have a medical background, given that markets continue to be driven by ongoing fears over the Chinese coronavirus outbreak.

As with Friday, G10 FX struck a classic risk off tone as a fresh week got underway yesterday, with investors somewhat spooked by the scale of the outbreak; with infections in China now numbering almost 3,000and sporadic other cases being reported in numerous countries.

As a result of the risk averse tone, FX safe havens remained well-bid. This saw the Japanese yen end the day 0.3% higher, while the Swiss franc added 0.2%. The dollar was also well supported, with the greenback ending the day 0.1% higher against a basket of peers.

Conversely, the risk sensitive antipodeans once again struggled. The kiwi dollar ended the day 0.7% lower, touching a more than 1-month low against its US counterpart. The Aussie dollar also faced headwinds, losing a touch less than 1% on the day, languishing at a 3-month low against the greenback.

Yesterday's full scorecard is below;

Of course, the risk aversion was not limited to FX. In fact, volatility was greater and risk-off sentiment significantly more pronounced in other asset classes.

Starting with equities, markets tumbled across the world yesterday, with investors primarily concerned about the potential significant hit to global growth as a result of lesser Chinese demand. In Europe, the pan-continental Stoxx 600 ended the day 2.25% lower; with 581 of the index's component stocks ending the day in the red.

Across the pond, the US benchmark S&P 500 ended the day with losses of 1.55%. The decline came as the VIX - a measure of market volatility - rose to a 4-month high above 18.0.

Meanwhile, in commodities, oil prices continued to lose ground on fears of lower Chinese demand. Both global benchmark Brent and US WTI crude settled more than 2% lower, falling to 3-month lows.

In contrast, gold prices surged to a 3-week high as part of a rotation into safer climbs, with the precious metal ending the day around 0.5% higher.

Bond yields also fell, signifying increasing demand, with the US 10-year yield falling 8bps to 1.61%. This decline, especially demand at the long end of the curve, resulted in spreads narrowing, with the 2s10s spread now standing at just 16bps.

 

Germany IFO Survey - Sentiment Still Shaky

Elsewhere, Monday's primary data release came from Germany, in the form of the latest IFO sentiment surveys.

Somewhat surprisingly, given the recent removal of significant uncertainties from the economic outlook, the business climate indicator fell to 95.9 in January, down from last month's solid 96.3.

The fall in sentiment dragged the euro a touch - around 0.1% - lower, however provides a good example of why sentiment surveys should always be taken with some scepticism, with the follow-through impact on 'hard' data always the primary concern of market participants.

 

US Releases

Across the pond, a couple of notable second-tier data points were released, though both failed to generate significant volatility:

  • December's new home sales came in below expectations, with only 694,000 sales last month, representing the slowest pace of sales in 5 months
  • In contrast, the Dallas Fed's regional manufacturing survey painted a more upbeat picture, increasing to a 4-month high of -0.2
Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1830 1.1918 1.1632 2.40%
GBP/USD 1.3040 1.3266 1.2954 2.35%
EUR/USD 1.1020 1.1239 1.1009 2.05%
GBP/AUD 1.9290 1.9345 1.8766 2.99%
GBP/NZD 1.9920 1.9972 1.9544 2.14%
GBP/CAD 1.7190 1.7306 1.6918 2.24%

Today's Market Highlights

US Durable Goods Orders

Today's first highlight comes in the form of December's US durable goods orders, a useful leading indicator for the presently subdued manufacturing sector.

Headline orders are expected to rebound from November's disappointment, with an MoM increase of 0.5% expected.

 

Other orders measures are also expected to rebound, with orders excluding defence set to increase by 0.5% MoM, and orders excluding transport set to tick higher by 0.2%.

A word of caution on the latter, however, is that the excluding-transport orders measure will likely continue to be dragged lower by the ongoing production slowdown affecting Boeing.

Nonetheless, the increasing orders bode well for the struggling US manufacturing sector, with a greater volume of orders a positive leading indicator for future output from the production sector. An uptick in industrial output would be a welcome boost to the US economy, and take a significant burden off of the consumers' shoulders.

 

 

US Consumer Confidence

Speaking of the US consumer, markets will get their latest read on consumer confidence this afternoon.

The Conference Board's confidence index is expected to tick higher to 128.0 in January, a healthy increase as 2020 gets underway.

Of course, as flagged numerous times before, the US consumer is the primary - if not only - factor underpinning the present US economic expansion. Hence, a solid level of consumer sentiment, and the likely increase in spending that will result, should prolong the present expansion for some time to come.

 

Anything Else to Look Out For?

Here’s a selection of other notable events to keep an eye on today:

  • The Richmond Fed's monthly manufacturing index is expected to surge to 9.0 this afternoon, another expected positive for the ailing US production sector
  • Overnight, fourth quarter CPI figures are due from Australia, expected to show headline inflation remaining unchanged at 1.7% YoY; leaving the prospect of RBA policy loosening in H1 on the table
  • In terms of speakers, today's only notable remarks come from dovish ECB Chief Economist Philip Lane; while the FOMC and BoE remain in their pre-meeting blackout periods

 

Today's Economic Calendar

Time Currency Release Consensus Previous
1.30pm USD Durable Goods Orders (MoM Dec) 0.5% -2.1%
3.00pm USD CB Consumer Confidence 128.0 126.5
12.30am AUD CPI (YoY - Q4) 1.7% 1.7%