Risk aversion is dominating early trade on Tuesday, with losses in Asia spilling over into Europe. The FTSE is on track for its worst day in 7 weeks as traders fret over the outbreak of the coronavirus in China. The virus has so far resulted in 4 deaths and is being likened to the SARS outbreak 17 years ago. Authorities confirming that the disease can spread between humans means that contagion could be far-reaching, particularly with the high levels of travel around Chinese Lunar New Year.
Upbeat wage growth lifts pound
A stronger pound is also weighing on the FTSE. Upbeat wage data has helped GBPUSD snap a 3-session losing streak. After some particularly poor UK data recently, wages growth surprised to the upside increasing 3.2% versus an expected 2.9%. Following the unexpected contraction in November’s GDP, inflation striking a 3-year low in December and weak retail sales, traders were pricing in a 70% probability of a rate cut by the BoE. The upbeat wages data is helping push back on easing expectations. GBP/USD is advancing towards $1.3050.
Pound strength is weighing on the multinationals on the FTSE, which earn profit and revenue abroad.
Movers & shakers
There are fewer climbers on the FTSE leader board this morning. However, Easyjet is standout gainer up just shy of 5% following an impressive trading update. Revenue +10%, passenger numbers +2.3%. Miners and Burberry dominated the loser board, these are stocks that are closely tied to the health of the Chinese economy.
Levels to watch
FTSE has sunk 1.2% in early trade, breaking through 100 & 50 sma and support at 7584. It is testing support at 7550 a breakthrough here could indicate momentum is building for a wider sell-off. Support can be seen at 7515 (an 8th low) opening the door to 7456. On the upside, resistance is at 7650 (daily high) followed by 7680 ( 17th Jan high).
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