Week Ahead: Coronavirus Contagion In Focus

What a wild week!  After terrible GDP data out of Japan on Monday, yen pairs were all the rage on Tuesday and Wednesday as pairs such as EUR/JPY traded up over 2% and USD/JPY  traded up over 1.6%. After speculation, the move was a post poor GDP move or because of coronavirus fears in Japan, it seems as though Japan’s Government Pension Investment Fund (GPIF) was the main seller of Yen, reallocated funds to buy foreign bonds. Thursday and Friday were a wake-up call for equity markets as more cases of the coronavirus had been discovered outside of China, particularly in Iran, Lebanon, and South Korea. This led to concerns of further manufacturing disruption. Oddly enough, earlier in the week, lowered guidance from AAPL and WMT couldn’t even spook the market! The S&P 500 is down nearly 1.5% on the week. One more thing….GOLD.Gold was leading the risk-off move all week, trading higher all 4 days this week (Monday was a US holiday), and is up almost 4% this week!!!

Next Week

With a light economic calendar most of this week, the main focus is going to, unfortunately, be on the coronavirus. After cases were reported in Iran and Lebanon, the World Health Organization’s (WHO) Tedros Adhanom Ghebreyesus said the virus can still be contained, however “the window of opportunity is narrowing, so we need to act quickly before it closes.”The virus will be closely monitored this weekend and throughout next week. If it continues to spread, stocks could continue to weaken, especially if more cases are identified in the Europe and the US. Other large companies that rely on manufacturing from China are also likely to warn on Q1 earnings. Ironically, as stocks sold off toward the end of the week,  yen pairs were only down slightly (and still closed up a large amount for the week).  This indicates that there are still sellers of yen in the market. (Yen pairs are highly correlated with risk. As stocks sold off, yen pairs should have sold off as well).Watch for more yen selling next week. As we discussed Thursday, if USD/JPY closes about 112.40, it could run to 115.60!  

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