Daily Summary: Virus overshadows boring ECB

• Coronavirus spreads, makes markers nervous
• ECB stays put, EURUSD dives lower
• Oil prices down, recover somewhat after the inventory data
• Firday’s PMIs key for investors

Markets are down on Thursday from Asia to the US as investors become concerned with consequences of the Chinese virus that has killed at least 17 in China but has also been already detected in the US and UK. The Chinese decided to close Wuhan metropolitan area and travel limitations will deal a clear hit to the economy days before the start of the Lunar New Year. Obviously, the more the virus spreads, the broader consequences it might have globally, just when the economy looked to start stabilizing.

Wall Street and DE30 hit fresh all time highs just yesterday but today the moods are much darker. While the losses in the US are moderate (US100 is actually close to zero, US30 slides by 0.5%), Europe is deeper in the red with DE30 down 0.7% and RUS50 (due to sinking oil prices) 1.5% lower. A false breakout on DE30 yesterday might be very costly unless bulls regroup soon.

We finally see some moves on the FX market, as the Japanese yen storms higher amid risk aversion. The ECB was technically the event of the day but it didn’t offer many hints regarding the future policy other than Lagarde opening the door very very slightly to more asset purchases. That was enough to trounce euro lower and EURUSD sunk to 1.1040, the lowest level this year. EURJPY slid by 0.9% and GBPJPY as the Queen signed the Brexit bill. Ugly trade data from Japan (Japanese exports declined in y/y terms in EACH of the months in 2019) had little impact as risk aversion flows dominated the market.

Is the bullish trend over? GBPJPY has painted a full bearish reversal on the D1 chart. Source: xStation5

Oil continued to sink as the virus could hurt oil demand. Brent oil (OIL) slid below $61 for the first time since 3 December but recovered slightly after the US inventory data showed a smaller build of gasoline stocks and a draw of distillates.

Friday will be crucial from the macroeconomic perspective as we will get flash PMIs from Japan, Europe and US. We are sure that the virus will draw the most attention but unless the economy improves (as investors hope) this correction could get much uglier.