The pandemic in China is what has been driving markets around since mid January. News about the virus keep messing with the sentiment, flipping it around from positive to negative day to day and vice versa. New cases keep coming up, heading towards 50k in total, while deaths have surpassed 1,000. Two main officials have been fired in Wohan on failure to stop the spread of the virus, but Coronavirus fears have resided somewhat and risk assets are retracing higher, with stick markets climbing fior the second day, while commodity dollars climbed today.

So, the pandemic is still driving markets around. The UK GDP report for Q4 of 2019 was released this morning, but it didn’t have much impact, apart from sending the GBP around 40 pips higher. The UK economy missed contraction slightly, falling flat in Q4, which was due to the improvement in December, after UK elections, following two negative months in October and November. So, UK closed 2019 in the right footing, but January doesn’t seem good, considering the slowdown from the coronavirus.

The European Session

• China Expects Cases to Increase, But Stabilize Later – Coronavirus cases keep increasing in China, heading towards 50k, while deaths have surpassed 1,000. New cases keep coming and the situation is getting worse, but the sentiment is not as bad as in January. Chinese officials expect a further increase this month but, then the virus will flatten out. Remarks From Chinese Government Medical Advisor, Zhong Nanshan
  • Virus outbreak may peak later this month and then plateau
  • Based on current models and trend
  • The new coronavirus has been very contagious up to this point, compared to SARS
  • It is unclear if the virus is being spread by ‘superspreaders’
  • China needs stronger, more powerful disease control system
  • Situation is improving in some provinces, with new diagnoses declining
• Goldman Sachs Revises Chinese GDP Down – Goldman Sachs expects the Chinese economy to slow down to 5.2%, but considering that the effects of the virus on the economy are greater, I think that the GDP will slow down further.  Remarks From Chinese Government Medical Advisor, Zhong Nanshan:
  • Virus outbreak may peak later this month and then plateau
  • Based on current models and trend
  • The new coronavirus has been very contagious up to this point, compared to SARS
  • It is unclear if the virus is being spread by ‘superspreaders’
  • China needs stronger, more powerful disease control system
  • Situation is improving in some provinces, with new diagnoses declining

   

• UK Q4 GDP – The UK GDP report for the Q4 of 2019 was released earlier this morning. This report was interesting because the UK economy had been weakening considerably in recent months and there were indications that it might have fallen into contraction. But, it seems that the optimism in December following Boris Johnson’s reelection, helped keep the economy afloat, just about. Below are the details of the Q4 report.UK Q4 GDP Report
  • UK Q4 preliminary GDP 0.0% vs 0.0% q/q expected
  • Prior (Q3) +0.4%
  • GDP +1.1% vs +0.8% y/y expected
  • Prior (Q3) +1.1%
  • Private consumption +0.1% vs +0.1% q/q expected
  • Prior +0.3%
  • Exports +4.1% vs +1.8% q/q expected
  • Prior +7.9%
  • Imports -0.8% vs -0.1% q/q expected
  • Prior -0.3%
  • Total business investment -1.0% q/q
  • Prior 0.0%

  UK December GDP Report

  • UK December monthly GDP +0.3% vs +0.2% m/m expected
  • Prior -0.3%
  • Index of services +0.3% vs +0.2% m/m
  • Prior -0.3%; revised to -0.4%

The US Session

• Powell’s Testimony – FED chairman Jerome Powell is testifying on the Semiannual Monetary Policy Report before the House Financial Services Committee, in Washington DC and the statement was released 90 minutes earlier.
  • Policy likely appropriate flooring material reassessment
  • Risks to outlook remain, closely monitoring coronavirus
  • Fundamentals supporting household spending still strong
  • Virus could cause disruption in China with spillovers
  • Repeats Fed to slow bill buying, transition from repos
  • Putting budget on sustainable path creates policy space
  • Important for fiscal policy to help in a downturn
  • Sees inflation moving closer to 2% over the next few months
  • Current stance of monetary policy will likely remain appropriate as long as incoming information about economy remains consistent with Fed’s outlook
  • Economic activity increased at a moderate pace and 2nd half of 2019 as economy appeared resilient to global headwinds
  • Fundamentals supporting household spending remains solid
  • Business investment and exports have been weak largely reflecting sluggish growth abroad and trade developments
  • Fed is closely monitoring the coronavirus which could lead to disruptions in China that spill over to the global economy
  • Fed expects inflation to move closer to percent of the next few months as unusually low readings from early 2019 drop from the 12 month calculation
  • US faces long-run challenges, site labor force participation lower than in other advanced economies and labor market disparities across racial ethnic and geographic groups
  • Finding ways to boost labor force to space in a productivity should remain a national priority
  • More sustainable federal budget path would give policymakers space to use fiscal policy in downturn in support the economy’s growth over the long term
• China’s President Thinks – China’s president Xi is trying to stay positive in the face of the coronavirus outbreak He made a speech a while ago, saying:
  • Believes China will win battle against virus
  • China will complete economic and social targets that have been set
  • China will be more prosperous after battle against virus is 1
  • prevention and control work on coronavirus is having positive results
  • epidemic fight is government’s top priority
• ECB’s Lagarde Testimony – The prepared text from Lagarde’s testimony at Strasbourg European parliament:
  • Monetary policy can’t the only game in town
  • Side effects of policy become greater with time
  • We want to assess whether a central bank digital currency could serve a clear purpose for the public and support the ECB’s objectives
  • euro area growth momentum has been snowing since the start of 2018, largely on account of global uncertainties in weaker international trade
  • monitoring growth is also weaken pressure on prices and inflation remains some distance below are medium-term aim
  • euro area area unemployment at 7.4% is at its lowest since May 2008

Trades in Sight

Bearish WTI Crude Oil

• The trend has been bearish since early January
• MAs are pushing it lower
• The sentiment is still pretty negative
• The retrace up is complete ion H1 chart

The 100 SMA has turned into resistance now

Crude Oil turned bearish in the second week of January, after having quite a bullish month in December, following OPEC’s decision to cut production further and the tensions in the Middle East, between US and Iran. But, the sentiment turned negative for Oil after the coronavuirus outbreak in China, which is keeping everyone on their toes. Business has slowed in China, which is keeping the demand subdued for Oil. As a result, WTI oil has lost around $16.50 from top to bottom, breaking below the $50 level. During this period, moving averages have been providing resistance, the smaller ones such as the 50 SMA (yellow) when the trend was stronger, and the larger ones such as the 100 SMA (green) when the trend slowed.

Today we are seeing another retrace higher and the price has moved above $50. The 20 SMA (grey) and the 50 SMA. But, the 100 SMA is standing strong, providing resistance. We could have gone short here, but we are already long on USD/CAD, which is pretty similar, so we don’t want to get too exposed. If you can afford it, you can look for a sell trade around here.

In Conclusion

The UK GDP report showed that the economy rebounded in December last year, after BoJo won a clear majority in the British Parliament, clearing some Brexit uncertainty. As a result, UK GDP fell flat at 0.0% in Q4, after two negative months, but I don’t suspect that the UK economy will jeep the pace of December.