Equities in Shanghai kicked off the week with a 3% rebound despite the decline in Caixin manufacturing index to the lowest on record. February read showed that manufacturing in China slowed at the fastest pace since the collect of data began in 2004. The coronavirus outbreak paralyzed activity in the world’s biggest factory last month. Export sales plunged on order cancellations and shipping restrictions.
Nikkei gained 1.05%, Hang Seng and Kospi recovered 0.81% and 0.92% respectively.
WTI rebounded 2.86% above to $46 a barrel, as Brent traded at $51. The recovery will likely continue on expectation that OPEC will announce further production cuts later this week, with or without the support of Russia. We could expect a consolidation near $45/48 area on the run up to the March 5-6 meeting. To have a sustainable positive impact on oil prices, the OPEC cut should take into consideration the size of the coronavirus-led slump in demand. A cut 1-million-barrel-per-day may have a limited positive influence.
FTSE (+2.15%) and DAX (+1.65%) futures hint at a bounce at the open, following the hefty sell-off that hit the market last week.
US futures edged higher, as well.
Early hours of trading in Asia point that investors are ready to start licking their wounds from last week. The downside potential has certainly been exhausted after equities recorded their worst plunge since the 2008 crisis. Many investors are looking to jump on the back of a bull at the current dip. Giving the size of last week’s sell-off, the recovery may be fascinating as well.
Record low US Treasury rates and the expectation that the Fed will cut the interest rates in the coming meeting should give a boost to equity markets worldwide. Wild moves in US sovereign markets sent the probability of a March rate cut to 100% last week. The Fed will certainly have its hands tied faced with such a substantial panic and give the market what it demands. There are even speculations that US officials may cut the interest rates before their next scheduled meeting on March 16-17, which we doubt.
So, with the reassurance that the Fed will have their back covered, equity traders could only be tempted to jump on the back of a bull this week.
The FTSE is expected to recover past the 6700p mark at Monday open, as recovery in oil prices should fuel energy stocks and the energy-heavy index. The DAX should step above the 12000 handle and the S&P500 will certainly target a jump above the 3000 level.
Gold recorded wild swings last Friday. The price of an ounce tanked to $1562 despite the heavy sell-off in the equity space. The precious metal traded near the $1600 on Monday. The record-high speculative long positions warn that improved risk appetite could trigger decent headwinds in gold prices moving forward. A return to $1500 per oz would not be extravagant.
In the currency markets, it is about time for the US 10-year yield to rebound from an all-time low near 1% and give a boost to the US dollar.
The euro, which had a fantastic week against the greenback, is expected to lose some field as levels above 1.10 should be tempting for entering a bearish bet on the single currency. A move below 1.0960, the major 38.2% Fibonacci retracement should send the pair back to the bearish consolidation zone.
An upturn in the US dollar could further accelerate the sell-off in Cable. Mounting no-deal Brexit worries could encourage a further downside development in Sterling toward the 200-day moving average, which currently stands a touch above the 1.27 mark.
Due today, the final PMI manufacturing data in Europe and the US deserves some attention, but a downside revision in data should not slow the recovery.