Close to Monday starting positions
Supportive risk sentiment sustains across major equity benchmarks, despite a mounting victim and death count of Coronavirus that has now globally risen to 25 and 830 in the past week. The spread of the virus hasn’t exactly scared the life out of markets, but it has managed to cap weekly gains given the repeat of a potential devastating SARS 2003 outbreak remains a lingering concern in the back of investors’ minds. Even so, it’s worth noting that markets could also be conflating such tail risks with the feeling that it’s an appropriate time to take some money off the table and book profits ahead of Lunar New Year holidays.
ASX finished in the green, but mostly lacked conviction edging marginally ahead of its starting position on Monday. The index was boosted by familiar gains in CSL, the bio-pharmaceutical giant hot on the heels of Commonwealth Bank – the second largest stock on the ASX by market cap. S&P futures were relatively quiet finding little immediate impetus to go higher, though should take comfort in healthy initial jobless claims and consumer sentiment readings overnight.
PMIs up ahead
In contrast, European futures are eyeing off an extremely strong start ahead of what’s likely to be the most telling data event of the week to hit the wires in European PMIs (8.15am GMT). The fact that Europe’s manufacturing landscape has somewhat stabilised over the past few months and looks to be on the verge of further improvement, is priming expectations ahead of the print. Mix that in with lighter Chinese New Year liquidity conditions, and all of a sudden, you might get price moves that are both exacerbated and in a positive direction. This is what’s helping to drive European futures higher in Asia.
In the UK, FTSE is poised for 48pt jump at the open as it mulls the release of the highly pivotal UK PMI (9.30am GMT) number that looks set to determine which way the BoE moves in January. Similarly, DAX eyes a strong start of over 100pts that puts it back in the vicinity of record highs.
Expect focus to be firmly placed on Germany’s Manufacturing and Services flash PMI, forecast at 44.5 and 53.0 respectively. If they can manage to print better than expectations, it wouldn’t be surprising to see markets finish the week in a heavily risk-on fashion, completely disregarding the severity of the Coronavirus situation.
FX shakers and movers
The question remains whether the UK can avoid a rate cut, despite still only seeing a touch above 50% likelihood implied in the market. It’s likely only an extremely strong PMI will keep the BoE on hold.
Overnight EURUSD settled 50pips lower, but was still largely uneventful given Lagarde came in as expected. The ECB’s Strategic Review will conclude by the end of the 2020, and looks to focus on “reviewing the effectiveness and potential side effects of the [the past decade’s] monetary policy toolkit”, how the ECB assess price stability and communication practices. This was flagged previously and doesn’t come as much of a surprise. Until the Review is complete, it’s likely ECB dovish risks are off the table. EURUSD should see high sensitivity to PMIs up ahead.