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James Hyerczyk

With the U.S. crude oil market closed on Monday for Presidents’ Day, traders are already looking for early pressure on Tuesday due to weaker economic data from Asia overnight, and expectations of further evidence on how China’s coronavirus epidemic has affected oil demand later in the week.

Most of the new evidence will be short-term in nature since it is going to take much more time to assess the longer-term effect on demand.

Analysts at Capital Economics said over the weekend that it is too soon to start assessing the longer-term economic fallout from the epidemic.

“Attention will be paid (this week) to the range of flash manufacturing PMIs (purchasing managers’ indices) for February, particular in Asia, as these should provide an early indication of how significantly the virus is affecting global manufacturing supply chains,” Capital Economics said.

“We expect the data to be weak, but if they are better-than-expected then industrial commodity prices could see further gains.”

Last week, the Reserve Bank of New Zealand (RBNZ) said “the COVID-19 (coronavirus) outbreak is an emerging downside risk.”

“We assume the overall economic impact of the coronavirus outbreak in New Zealand will be of a short duration, with most of the impacts in the first half of 2020. Nevertheless, some sectors are being significantly affected. There is a risk that the impact will be larger and more persistent. Monetary policy has time to adjust if needed as more information becomes available,” the RBNZ monetary policy statement read.

Early Monday, New Zealand Prime Minister Jacinda said her country’s GDP is expected to slow to around 2 percent to 2.5 percent this year, due to the economic effect of the coronavirus epidemic.

Singapore cut its 2020 growth and exports forecasts on Monday due to the expected economic blow from the new coronavirus outbreak, flagging the chance of a recession this year.

Singapore’s Prime Minister Lee Hsien Loong said on Friday that a recession was possible, with the government downgrading its gross domestic product (GDP) forecast to as low as a 0.5 percent contraction, compared with a range of between 0.5 percent to 2.5 percent growth previously.

In Thailand, which is dependent on tourism and trade, growth for the full year was lowered to a range of 1.5 percent to 2.5 percent in 2020, down from a previous estimate of 2.7 percent to 3.7 percent, the National Economic and Social Development Council said on Monday.

Short-Term Outlook

These new developments could weigh on investor sentiment on Tuesday. Even though some traders believe that stimulus from China and additional production cuts from OPEC could help stabilize crude oil demand, it may not be enough over the short-run. Furthermore, the long-run is still an unknown so any gains are likely to be limited.

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