China’s transparency and the announcement of measures to counter the coronavirus outbreak calmed unnerved markets and revived risk appetite in Wednesday’s Asian trading. The Chinese stocks rebounded from YTD lows that led to a broad-based recovery in the regional indices. S&P 500 futures alongside US Treasury yields also firmed further while gold prices remained under pressure near $1550 levels.
Across the fx space, USD/JPY bounced-off lows near 109.80 and regained the 110 handle as the virus fears subsided. Meanwhile, the US dollar hovered near five-week highs across its main competitors. As a result, both EUR/USD and cable traded almost unchanged on their road to recovery. Despite risk reset, the Antipodeans and Chinese yuan failed to cheer up, as uncertainty over the lasting effect of the virus combined with worries over travel around the Chinese New Year remained a weight on the investors’ minds. USD/CAD advanced towards 1.3100 amid weaker oil prices, in the wake of the virus outbreak led worries over dwindling oil demand from China.
Main Topics in Asia
EU preparing to give UK worse trade deal terms than Canada or Japan – The Telegraph
China offers assurance that US trade deal won’t hurt Europe – Caixin
US Republicans blocked the Democrats’ move to subpoena state department documents
Australia: Consumer Sentiment falls further – Westpac
Wuhancorona virus is likely to be mutated – The Global Times
China National Health Commission’s Li: 440 confirmed cases as of end-Jan 21 in 13 provinces
Bank Indonesia’s Warjiyo: To continue accommodative monetary policy, USD/IDR hits five-day highs
There is a possibility of virus mutation and a risk of further spread of the epidemic – Global Times
China National Health Commission’s Jiao: Infection of medical staff in virus outbreak shows loopholes in treatment methods
China’s NDRC Vice Chairman Ning: No date set for phase-two trade talks with the US – Bloomberg
Key Focus Ahead
The risk sentiment will continue to be driven by the China virus updates and USD dynamics in the European session ahead, as the EUR docket lacks any relevant economic data release except for the second-tier UK Industrial Trends Survey – Orders for January. The data will drop in at 1100 GMT.
Next of note remains the Canadian Consumer Price Index (CPI) and Wholesale Sales that will be published alongside the US Chicago National Fed Activity Index at 1330 GMT. Later in the American mid-morning, the US Existing Home Sales data will be reported at 1500 GMT. At the same time, the Bank of Canada (BOC) Interest Rate Decision will be announced. The BOC Governor Poloz’s press conference will soon follow at 1615 GMT. Meanwhile, the CAD traders will also look forward to the API Weekly Crude Oil Stock data, due at 2130 GMT, for fresh direction in oil prices.
EUR/USD looks weak after rejection above 1.1100
EUR/USD is sidelined near 1.1080 ahead of the London open. Single currency failed to keep gains above 1.11 on Tuesday despite upbeat German data. The sentiment is quite bearish and a deeper drop to the 100-day average could be in the offing.
GBP/USD modestly flat around 1.3050 amid Brexit concerns, USD strength
GBP/USD holds onto the recovery despite looming Brexit uncertainty and broad-based US dollar strength. EU is likely to offer a tough Brexit deal that increases the odds of harsh departure.
Bank of Canada Rate Decision Preview: Rewards of Economic patience
Overnight rate expected to be unchanged after rate decision. Canadian economy projected to improve following US-China trade pact. BOC has the highest base rate of the seven major central banks.
Oil could drop $3 if virus plays out like SARS – Goldman Sachs
The US investment banking giant, Goldman Sachs, assesses the impact of a potential SARS-like epidemic on oil markets.