The risk sentiment improved somewhat this week, despite the increase in coronavirus cases. But, the initial panic is over and it seems like the virus might be contained within China, the largest part that is, because there have been cases outside of China, but it seems to be in control. So, the sentiment improved this week, but it has turned negative again today. But, rather  than due to the coronavirus panic, the sentiment has been hurt by the effect of the pandemic in the economy. Moody’s has lowered China’s economic growth, from 5.8% to 5.2%, while international corporations are expecting lower revenue due to the virus.

Apple said last night that they now expect lower returns to normal conditions in China with demand curbed within the country and doesn’t expect to meet revenue guidance this quarter. Walmart also added to the vows, with earnings for Q4 of last year disappointing. Earnings also cooled off in the UK as well in December, ad today’s report showed, while the virus has hurt the economic sentiment in the Eurozone, which turned lower this month, after jumping higher in January. So, risk assets have turned bearish again today.

The European Session

• Moody’s Lowers China’s GDP Forecast for 2020 – Besides the impact in the population, the coronavirus is also having a big impact in the global economy and the Chinese economy in particular. Moody’s revised the economic growth in China for this year, from 5.8% previously, to 5.2%. They said that the revision reflects a severe but short-lived economic impact. They also added that Asia Pacific economic growth is to slow as coronavirus weakens demand and disrupts supply chains, adding that a push towards intra-regional trade will also amplify the impact of lower Chinese growth this year.
• UK Average Earnings Index – The UK economy has been weakening in the last year, following the rest of the world in a downwards economic spiral, as the trade war between US and China escalated. But, average earnings have been keeping up pretty well, despite the economic slowdown. Although, they are showing signs of weakness as today:
  • UK December average weekly earnings +2.9% vs +3.0% 3m/y expected
  • Prior +3.2%
  • Average weekly earnings (ex bonus) +3.2% vs +3.3% 3m/y expected
  • Prior +3.4%
• Employment Report – The employment report was released at the same time as the average earnings one, earlier this morning. The employment report leans on the positive side.
  • ILO unemployment rate 3.8% vs 3.8% expected
  • Prior 3.8%
  • Employment change 180k vs 148k expected
  • Prior 208k
  • January jobless claims change 5.5k
  • Prior 14.9k; revised to 2.6k
  • January claimant count rate 3.4%
  • Prior 3.5%; revised to 3.4%
• German ZEW Economic Sentiment – The economy of the Eurozone has been weakening for two years and, as a result, the ZEW economic sentiment falling into negative territory last year and bottoming at around -44 points. Although, in recent months the Eurozone economy has stopped weakening and we have seen some slight.
  • Germany February ZEW survey current situation -15.7 vs -10.0 expected
  • Prior -9.5
  • German ZEW economic sentiment expectations 8.7 vs 21.5 expected
  • Prior 26.7

  improvement, after the ECB restarted the QE programme and cut deposit rates further to -0.50%.

• Eurozone ZEW Economic Sentiment – In January, the ZEW economic sentiment jumped to 22 points, both in Germany and the Eurozone, but we see that this month it has made a U-turn and has softened considerably. Below are the reports from Germany and the Eurozone:
  • Eurozone ZEW economic sentiment expectations 10.4
  • Prior 25.6
• Coronavirus Update –
  

  Country, Other	Total Cases	New Cases	Total Deaths	New Deaths	Total Recovered	Serious, Critical
  China	72,440	+1,892	1,870	+100	12,990	11,741
  Diamond Princess	542	+88			17	20
  Singapore	81	+4			29	4
  Japan	74	+8	1		20	4
  Hong Kong	61	+1	1		2	7
  Thailand	35				17	2
  S. Korea	31	+1			12
  Taiwan	22		1		2
  Malaysia	22				11
  Germany	16				9
  Vietnam	16				7
  USA	15				3
  Australia	15				10
  France	12		1		5
  Macao	10				5
  U.A.E.	9				3	1
  U.K.	9				8
  Canada	8				1
  Philippines	3		1		2
  India	3				3
  Italy	3					2

The US Session

• Canadian Manufacturing Sales – Canada manufacturing sales report for December was released a while ago and it came in much weaker than expected at -0.7% versus +0.7% estimate. Moreover,
  • Canada manufacturing sales for December -0.7% versus 0.7% estimate
  • The prior month was revised to -1.0% from -0.6%
  • The decline is the 4th straight month in a row
  • Ex auto manufacturing sales increase 0.1%
  • In volume terms Canada factory sales fell -0.4%
  • The declines were led by motor vehicle, aerospace
  • Motor vehicle shipments declined -6.8%
  • Aerospace products fell -16%
  • Sales were down in 11 of 21 industries representing 43% of the Canada manufacturing sector
  • Factory inventories drop -0.3%
  • New orders fall -0.6%
  • For all of 2019 sales increase 0.5%. That was down from 5.4% in 2018 and 6% in 2017

• US Empire State Manufacturing Index – The manufacturing index was released earlier too ad it offered a pleasant surprise, giving the US dollar a lift, in particular against the moribund Euro. USD/CAD is also stronger after Canadian manufacturing sales missed estimates.
  • Highest since May 2019
  • Prior was +4.8
  • New orders 22.1 in February versus 6.6 January
  • Prices paid 25.0 in February versus 31.5 in January
  • Employment 6.6 in February versus 9.0 in January
  • Shipments a 18.9 in February versus 8.6 in January
  • Average employee workweek -1.0 versus +1.3 in January
  • Unfilled orders +4.5 versus -2.7 in January
  • Delivery time +8.3 versus -2.7 in January
  • inventories +12.9 versus -0.7 in January
  • Six-month business conditions 22.9 vs 23.6 in January

Trades in Sight

Bearish EUR/USD

• The main trend is still bearish since early January
• Coronavirus is keeping the sentiment dovish
• The 50 SMA is pushing EUR/USD lower

The 20 and 50 SMAs are providing solid resistance for EUR/USD

EUR/USD has been bearish since early January, as the sentiment turned negative following the escalation of tensions between US and Iran in the Middle East, while coronavirus turned the panic button on, which has sent risk currencies tumbling lower. As a result, EUR/USD has lost around 450 pips, from top to bottom. Today, we saw another decent bearish move, which started after the softening ZEW sentiment this morning. The jump in the US Empire State manufacturing index earlier on gave the USD a push higher, which sent EUR/USD below 1.08. So, now the road is open for 1.05, as i mentioned a few days ago.

Moving averages have also been doing a great job in providing resistance during the weak pullbacks, pushing the price lower for this pair. The 20 SMA (grey) was doing that job in the first week, when the trend was really strong. Then, the 50 SMA took over and we saw EUR/USD tumble lower today, after the 50 SMA rejected it several times. So, as long as the price stays below these moving averages, then sellers will remain in control.

In Conclusion

The sentiment has turned negative again today in financial markets. Stock markets opened lower in the European session after Apple announced that it expects lower revenue, especially in China. The pace of coronavirus spread has slowed, but the impact on the Chinese economy will be severe nonetheless.