The Mid-Week Wrap Up: The Coronavirus And Major Markets In Focus

We are in the middle of the last week of January. Usually the last week of a month is a quiet one. Is that the case during this week? (Here the US/UK/EU are covered)

There was nothing quiet about the week so far…

On the economic data front, key stats included upbeat consumer confidence figures out of Germany and the U.S.

For the EUR, IFO business confidence figures out of the Eurozone weighed at the start of the week, however.

There were also some mixed U.S durable goods orders for December.

The stats had a limited impact, however, with risk aversion hitting the global financial markets early in the week.

The spread of the coronavirus grabbed the headlines as the death toll broke through 100 and the number infected rose beyond SARS levels.

Mid-week, the focus shifted to monetary policy, with the FED holding rates steady. While in line with expectations, Fed Chair Powell did raise concerns over the coronavirus and possible impact on China and the global economy.

On Thursday, the BoE is also expected to stand pat on policy, while forecasts are for 1 more vote in favor of a cut.

Eurozone and U.S GDP numbers for the 4^th quarter are also in focus and that’s before we even look at corporate earnings and Trump’s impeachment trial…

Mixed economic data from the major economies. In the meantime, the stock indices and currencies declined steadily. Is the same environment present in commodity associated currencies?

The commodity currencies took quite a beating through the early part of the week.

For the Aussie Dollar, a fall in business confidence in December didn’t help on Tuesday.

4^th quarter inflation figures on Wednesday weren’t much better. While the annual rate of inflation picked up to 1.8%, it was still well short of the RBA’s 2% to 3% target range.

When you throw in the effects of the ongoing bush fires and the economic disruption in China, the RBA has even more reason to cut rates in Q1.

Things were not much better for the kiwi Dollar and that was in spite of better than expected trade data on Thursday.

December’s trade data did reveal that China accounted for 28% of total NZ exports, however. It’s therefore not too surprising to see the Kiwi struggle amidst the virus outbreak in China and beyond.

For the Loonie, there were no stats to rock the boat after last week’s dovish outlook on monetary policy.

Concerns over demand for crude and disruption to global trade terms did weigh, however.

November GDP numbers will need to impress on Friday to ease pressure on the Bank of Canada…

The commodity currencies appear to be suffering just as the major ones. What about the Asian currencies, the Yen and Yuan?

The Japanese Yen has been in the hands of market risk appetite over the week.

With the coronavirus spreading to new geographies and the death toll rising, the total number of cases broke through 7,000. This was far greater than the 5,327 SARS cases over a lengthier 9-month period.

Economic data out of Japan on Friday will unlikely move the dial, with market sentiment towards the virus the key driver.

For the Chinese Yuan, it’s not surprising that there’s going to be some fallout. We could see the Yuan head back towards CNY7.00 levels against the Greenback. The Chinese government may well intervene, but to what extent is unclear.