Asian currencies and equities are offering a tepid response following news that the death toll from the coronavirus’ spread has climbed to 25, with new cases being reported in more countries, such as Vietnam and Singapore. The subdued trading volumes in the region ahead of the Lunar New Year festivities are likely preventing a more pronounced reaction in the markets.
Market participants perhaps can take heart from China’s efforts to lock down the epicenter of the outbreak by imposing travel curbs on seven cities, and the World Health Organization’s holding back from labelling the situation as a global health emergency. With several Asian markets seeing a holiday-shortened trading week ahead, investors will be hoping that the outbreak doesn’t worsen over the coming days. Still, regional markets could see an outsized reaction when trading resumes should pent-up concerns be unleased if the virus’ spread worsens drastically over the near-term.
However, any such reaction may eventually prove transitory, as long as the still-fragile expectations for a stabilising global economy in 2020 aren’t shattered. Once investors’ fears thin out, that could allow risk-on catalysts such as positive US corporate earnings or macroeconomic data to punch through meaningfully in the markets.
Gold, Yen offer muted reaction so far to coronavirus concerns
In a rather subdued response to the spread of the coronavirus, Gold and the Japanese Yen have seen limited moves over recent days. Bullion prices have refused to stray too far from the mid-$1500 range, while USDJPY appears content trading around the 109 to 110 range.
While not wanting to get too far ahead, fears over a potential pandemic are still supporting these safe haven assets. As the situation stabilises, investors may gradually eschew safe haven assets in favour of more risk-taking activities in the markets, which should prompt eventual softness in Gold and JPY.
Oil prices set to extend weekly losing streak
Unlike Gold and JPY, Oil traders apparently have fewer qualms offering a starker reaction to the viral outbreak. Brent crude dipped below the $62/bbl handle and is on course to mark three consecutive weeks of declines, while winding back most of its gains from December.
The price action of late highlights the notion that demand-side uncertainties are in the driver’s seat when dictating the overall mood in the Oil markets, with investors apparently more willing to brush aside supply-side risks, given recent geopolitical events involving Iran, Iraq, and Libya.
However, from a technical perspective, Brent futures are moving closer to oversold territory. Oil prices could see a rebound once the fears surrounding the coronavirus’ spread can begin retreating, allowing for global trade and travel conditions to stabilise, and by extension, prop up the world’s demand for Oil.
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