Tiomarkets Daily Market Commentary 27 Jan 2020
A new week sees an old theme dominate. If President Trump had hoped there would be something to detract from his impeachment trial, he got it in the form of the Coronavirus. While the Chinese community attempt to celebrate the Lunar New Year, 81 people have died and almost 3,000 are confirmed ill. Almost 50 cases have been confirmed outside of China although thus far no deaths. In Shanghai, the Holiday has been extended to the 10th February to keep businesses closed. All of this will affect the Chinese economy and potentially the global economy, thus the sharp risk aversion in the markets.
Monday would start with moves lower for equity markets and traditional ‘risk-on’ FX pairs such as USDJPY and JPY crosses as well as AUD, NZD and CAD. XAU would continue to benefit as Oil prices moved lower. As the US day gets going, USDJPY has dropped to a low of 108.73 and EURJPY to 119.92. EURUSD would slip to 1.1011 and GBPUSD to 1.3041. AUD, NZD and CAD would weaken to 0.6752, 0.6544 and 1.3199 respectively. Stocks in Asia would move lower led by the Nikkei down 2%. All the major European bourses would also fall sharply, the DAX down 2.7% and the UK FTSE 100 down 2.3%. In the US things were marginally better but the DJ and S&P closed lower by nearly 1.6%, taking the DJ into negative territory for the year. Has the stock market reversal begun or is this just a blip on the radar as the world gets to grips with the coronavirus outbreak? Going forward all eyes will be on JPY crosses and equities if the situation worsens. For today, the moves were sharp, and some would say predictable. But volatility is on the rise and the markets will react to every headline, positive and negative, going forward.
I recently commented on the Russell 2000 index and how it was under-performing the other 3 major US indices. The DJ, S&P and Nasdaq have all reclaimed and surpassed their highs of October 2018. The Russell has not. So while we all basked in the euphoria of new record highs to begin 2020, I urged caution as the ‘small business index’ had failed to play a complete catch up. Move forward a week or so and we are seeing the vulnerability of the 3 major US indices in their overbought status as panic sets in with the coronavirus. On the chart in front of you can see the Russell 2000 in green and red and the S&P in orange. The correlation is obvious, but you could argue that the Russell 2000 is leading the way. Keep an eye on this relationship over the coming days, even if we see a partial correction of today’s moves.
Monday would start with moves lower for equity markets and traditional ‘risk-on’ FX pairs such as USDJPY and JPY crosses as well as AUD, NZD and CAD. XAU would continue to benefit as Oil prices moved lower. As the US day gets going, USDJPY has dropped to a low of 108.73 and EURJPY to 119.92. EURUSD would slip to 1.1011 and GBPUSD to 1.3041. AUD, NZD and CAD would weaken to 0.6752, 0.6544 and 1.3199 respectively. Stocks in Asia would move lower led by the Nikkei down 2%. All the major European bourses would also fall sharply, the DAX down 2.7% and the UK FTSE 100 down 2.3%. In the US things were marginally better but the DJ and S&P closed lower by nearly 1.6%, taking the DJ into negative territory for the year. Has the stock market reversal begun or is this just a blip on the radar as the world gets to grips with the coronavirus outbreak? Going forward all eyes will be on JPY crosses and equities if the situation worsens. For today, the moves were sharp, and some would say predictable. But volatility is on the rise and the markets will react to every headline, positive and negative, going forward.
I recently commented on the Russell 2000 index and how it was under-performing the other 3 major US indices. The DJ, S&P and Nasdaq have all reclaimed and surpassed their highs of October 2018. The Russell has not. So while we all basked in the euphoria of new record highs to begin 2020, I urged caution as the ‘small business index’ had failed to play a complete catch up. Move forward a week or so and we are seeing the vulnerability of the 3 major US indices in their overbought status as panic sets in with the coronavirus. On the chart in front of you can see the Russell 2000 in green and red and the S&P in orange. The correlation is obvious, but you could argue that the Russell 2000 is leading the way. Keep an eye on this relationship over the coming days, even if we see a partial correction of today’s moves.
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.