Some Asian markets were closed due to the Chinese New Year holiday. Those that were open took another dive at the start of the week as the death toll due to coronavirus rose to 80 and the virus kept spreading despite containment measures. China, South Korea, Singapore and Hong Kong were closed. Nikkei sold off 2.03%, Thai Set 50 tanked 3.28%. Stocks in New Delhi and Mumbai eased 0.47% and 0.48%, as stocks in Jakarta slid 1.50%.

WTI tanked to $52 a barrel, as Brent crude dipped below $59 a barrel. Oil and commodities are fiercely pricing in the negative implications of the coronavirus on Chinese and global demand. If nothing, the cancellation of CNY celebrations and restricted traffic between major axes in China will have a non-neglectable impact on activity and no one knows how bad things could get moving forward.

The US equity futures kicked off the week in the red. The S&P500 (-1.01%), Dow (-0.95%) and Nasdaq (-1.26%) futures tumbled.

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The FTSE (-1.34%) and Dax (-1.41%) futures hint at a deep negative open on Monday as well, after having rallied on Friday amid the PMI data hinted at improved economic activity both in the Eurozone and the UK in January. The FTSE 100 traded above the 7600p mark on Friday, but the energy-heavy index is expected to open below 7500p on the back of an aggressive sell-off across the energy markets.

If we take a quick look to the data, the UK’s PMI manufacturing came in at 49.8 versus 48.8 expected by analysts and 47.5 printed a month earlier. Services PMI showed a bounce in activity with a decent 52.9 read in January versus 50.7 penciled in by analysts and 50.0 released previously. For now, it is too early to tell whether the soft data overly reacted to Boris Johnson’s victory, or whether this positiveness could translate into hard data such as growth and inflation, which have greatly disappointed recently and brought the British policymakers to consider cutting the interest rates to give a hand to the UK’s sputtering economy.

Anyway, Cable shortly spiked to 1.3173 on Friday as a kneejerk reaction to the PMI data, but rapidly gave back gains as traders preferred cashing in before Thursday’s critical Bank of England (BoE) meeting. While the activity in MPC SONIA futures points at a 55% probability for a 25-basis-point cut, analysts expect that the bank rate in the UK will be kept unchanged at 0.75% this Thursday. The pound will likely remain under pressure into the meeting, but it is unsure whether the extra short positioning will be strong enough to clear the 1.30 support against the US dollar given that the BoE expectations already seem to have gone well ahead of themselves.

Elsewhere, the Aussie and the Kiwi fell, and oil currencies retreated as capital flew into the risk-haven assets such as the yen, the Swiss franc and gold. The yellow metal rallied to $1588 per oz and steadied near the $1580 mark.

Demand in government bonds rose, yields fell.

In Europe, the Italian 10-year bond rallied the most and the yield fell more than 15 basis points to 1.078% as Matteo Salvini’s loss in a key local election gave Prime Minister Conte’s brittle government some sort of support and reduced the chances of an early election. The euro consolidated a touch above the 1.1020 against the greenback as European Central Bank (ECB) doves remained in charge of the market following the surprise dovish shift at last week’s ECB meeting. Trend and momentum indicators remain comfortably negative for the single currency. The critical 1.1017 Fibonacci support (61.8% retracement on September – January rebound) is the last technical barrier before the 1.10 mark.


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