US equities advanced to record highs yet another day on news that the rate of the coronavirus infection may be slowing and that the outbreak may not hit the US businesses as hard as first thought. Though the Federal Reserve (Fed) Chair Jay Powell reiterated that they are monitoring the downside risks of the coronavirus on the economy and stand ready to deploy further support measures if needed.
Asian equity markets fell out of the race however, as news in Asia were not quite the same. It appeared that the number of coronavirus infections didn’t decelerate but jumped instead after the method for diagnosis was revisited. Top officials at the helm of Hubei and Wuhan provinces were removed from their position.
US stock futures suffered losses in the overnight trading session.
Activity in FTSE (-0.19%) and DAX (-0.32%) futures point at a negative start in Europe as well.
The US 10-year yield slipped below the 1.60% mark, and the US dollar index advanced above the 99-mark supported by flight to safety.
Gold advanced to $1575 an ounce and the yen gained on increased risk-haven trades. The USDJPY retreated after trading above the 110 mark.
WTI crude held ground above the $51 a barrel, however, although the US stockpiles increased 7.5 million barrels last week versus 3.1-million-barrel build expected by analysts and near 3.5-milllion-barrel rise printed over the past two weeks. Higher oil inventories, significant fall in oil demand mostly due to coronavirus impact and OPEC’s resistance to curb production earlier than in March should hit back sooner rather than later. We remain seller on advances for a settlement within $48/$50 area.
In the FX, the euro gave in to a strong US dollar and soft data pressure and slipped below the 1.0880 handle in Asia to levels last seen in 2017. Yesterday’s data showed that the industrial production in the Eurozone contracted 2.1% m-o-m in December, the most in four years, versus -1.8% expected by analysts. The fact that the data referred to the period prior to the coronavirus breakout warned that the worst may not be behind for European industries. Today, the German inflation will likely confirm a 0.6% retreat in January. A soft inflation figure from the Eurozone’s growth engine could further jazz up the European Central Bank (ECB) doves and further weigh on the single currency. The euro’s move below the critical 1.0880 should encourage investors to strengthen their core short euro positions for a deeper fall to 1.0800/1.0750.
Cable was better bid despite solid gains in the US dollar elsewhere, but the upside remained capped by the 200-hour moving average, which currently stands near 1.2975.
On the US economic agenda today, the January headline inflation may confirm an advance to 2.4% from 2.3% printed a month earlier. But the Federal Reserve will likely welcome an above-the-target inflation for a short period, provided that the falling energy prices will likely pull the US consumer price index below the 2% target sooner rather than later. Therefore, even a solid inflation report will not offer enough conviction for a rate hike in the US. The Fed will likely remain seated on its hands this year. If anything, we have a higher probability of seeing a rate cut, and probably not before the second part of the year.