Wall Street’s wild ride saw stocks settle lower as uncertainty persists on the trajectory of the coronavirus and after the Fed signaled a bigger than expected withdrawal of liquidity with the repo operations. Asia is headed for a mixed open after markets digest the new way China is calculating new coronavirus cases. Global stocks could still see some support on optimism that the virus peak could still be later this month is still supporting markets and after some positive strokes on the trade front were delivered by Trump and Xi. The main catalyst for the case for higher equities remains the promise of global stimulus, but if China’s weakness extends to the second quarter, risk appetite will have trouble driving risky assets higher.
Fridays in 2020 have not been the best for stocks and we could see investors fall out of love of their bullish bets as everyone waits to have a clearer picture with the spreading of the coronavirus.
On the second day of the new methodology of confirming new cases, which includes imaging scans, Hubei reported 4,283 new cases, down from yesterday’s shocking jump of 14,840 cases which included prior days and weeks of cases. China reported the total number of cases has reached 63,851 and that the death toll rose by 121 to 1,380.
Mexico’s central bank rate decision went as expected, a unanimous 25-basis point cut to 7.00%, with expectations left firmly in place for more cuts to come. Mexico’s economy is vulnerable as the risk outlooks have grown, but they still remain one of the favorite EM trades out there. The Banxico will likely deliver another rate cut and if global growth concerns continue to grow, we could see further calls for fiscal reform.
South African President Ramaphosa’s moment to show he will do whatever it takes to turnaround the South African economy will have to wait after protests forced Parliament to delay the delivering of his state-of-the-nation address. What we did learn today was that South Africa will try to not only rely on Eskom for energy and will seek renewable energy options. The rand extended its declines but part of that was attributed to the broader emerging market selloff.
Oil prices appear to have stabilized this week on optimism that OPEC + will once again do whatever it takes to tighten output and on hope that the coronavirus peak is nearing despite the sudden jump in cases that stemmed from revised methodology in diagnosing cases. The trajectory of the coronavirus over the next several days could determine if oil prices rise or fall by $5 a barrel. The global economic slowdown has obviously dealt a tremendous blow to crude demand forecasts, but that could be fully priced in optimism grows that the virus peak is in fact nearing.
Financial markets remain unsure of the trajectory of new coronavirus cases, but they are starting to become confident that gold prices may rise higher no matter what. Gold, the favored safe-haven trade is benefiting from risk aversion flows following the unexpected increase in new coronavirus cases. If optimism returns that the virus could still be nearing its peak in the coming weeks, the global economic rebound could trigger a weakening dollar that will ultimately support commodity prices.