Daily summary: Virus concerns overshadow positive data

• PMI indices point to some manufacturing recovery
• Virus spreads quickly, scares markets
• Oil prices keep diving as demand concerns mount

Friday started fairly well on the markets. China and Korea had no sessions as they started New Year celebrations so virus concerns were not that loud on the markets and a solid PMI recovery in Japan delivered positive surprise. More of such surprises took place in Europe where both Germany and UK saw a clear improvement in activity. While the US manufacturing and French services indices slid, overall picture in January is clearly positive and suggests that the global economy is catching a breath. We suspect this recovery will be fairly limited as the main source here is digesting through the inventory glut and not a surge in global demand (despite a round of easing in 2019). Still this is a positive change after months of disappointments.

Equity markets reacted positively to the data but the optimism has been contained due to the enws of virus spread literally everywhere across the globe. There are new detections across whole Asia (including India) and in the US. This is already affecting not only the Chinese companies as McDonald’s informed about closing restaurants in 5 Chinese cities. However, markets are not yet in the panic mode – US500 and DE30 are still just shy off their all-time highs.

This cannot be said of oil market where prices are crashing. Both OIL and OIL.WTI are down more than $10/b since the reaction to the Soleimani death just 2 weeks ago as investors are concerned that the virus will hit activity, especially tourism. These concerns are pushing gold prices higher today.  

This is moving fast! OIL prices are not that far from the $56.50 support zone. Source: xStation5

The macro data seems to be supportive for the euro and the pound in general especially as the US PMIs were mixed but the opposite took place. EURUSD and GBPUSD are both down, EURUSD is at the lowest level in nearly 2 months.

The next week will be pretty important for stocks as 14 Dow Jones companies release quarterly earnings. All those 14 reports might be dwarfed by the Tesla report on Wednesday as the stock meteoric rise has turned many heads recently. We will be issuing special report ahead of this event on Tuesday.