EC Coronavirus Hits Asia Hardest, Europe And The US Resilient

Overview: The new coronavirus in China has moved into the vacuum left by the US-China trade agreement and clear indications that the Bank of Japan, the European Central Bank, and the Federal Reserve are on hold as investors searched for new drivers. The World Health Organization refrained from calling it a public health emergency even though China has dramatically stepped up its efforts to contain the new virus. Many Asian markets are closed for the Lunar New Year, but equities Japan, Hong Kong, Australia, and India eked out small gains. Europe's Dow Jones Stoxx 600 jumped 1.25%, its biggest increase since mid-December, if sustained, helped by preliminary PMI readings that lend credence to arguments that the worst may be behind the eurozone. It is recouping the losses of the last four sessions and is turning higher for the week. It would be the sixth weekly advance in the past seven. US shares are also trading firmer. After a strong recovery yesterday, the S&P 500 appears poised to gap higher at the opening. Again, buying on the dip strategy is being rewarded. Rising stocks sap the demand for bonds, and benchmark yields are 1-2 basis points higher in Europe and the US. Fading speculation of a Bank of England rate cut helped lift sterling to near three-week highs (~$1.3175) before the rally fizzled. The euro remains pinned near seven-week lows seen yesterday (~$1.1035). More broadly, the US dollar is little changed against the major currencies on the day, while holding on to weekly gains against most but sterling and the yen. Emerging market currencies are firm with the JP Morgan Emerging Market Currency Index is steady to higher, but is off about 0.35% on the week. Gold is a little heavy but is fairly flat with this week's settlements in a tight range between $1558 and $1562. March WTI has stabilized after falling more than 5% over the past three sessions.  

Asia Pacific

China has stepped up its efforts to contain the new coronavirus. Travel for some 40 mln people has been restricted covering at least ten cities. Incidents have now been reported in 32 of 34 provinces. China appears to be responding in a more transparent way than the experience with SARS in the early 2000s. Market participants are already turning their attention to the possible economic fallout. The SARS crisis saw Chinese GDP fall by around two percentage points. Toward the end of next week, after Chinese returns from the Lunar New Year, it will report the official PMI. The contagion is expected to hit services harder than manufacturing. It will also add to the typical distortion of the data at the start of the calendar year. The underlying slowing of the Chinese economy, the continued protests in HK, the recent election results in Taiwan, and now this virus are surely testing the leadership of President Xi.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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