After a positive start, European stock markets turned lower on Monday, as investor sentiment remains fragile despite rising hopes for supportive measures from the authorities across the globe to lessen the negative consequences from the coronavirus outbreak. The upside momentum turned out short-lived, suggesting the virus-related fears continue to persist, derailing any bullish attempts in risky assets. Form now, there have now been more than 87,000 cases of the virus confirmed globally and over 3,000 deaths. Amid the spreading disease, global stocks saw the worst weekly declines since the 2008 financial crisis last week. Public Health England has announced that they have a confirmed case of coronavirus infection in south London while the total number of infection in Iran rose to 1,501 as of Monday morning with 66 fatalities.
On the data front, weak Chinese data added to worries today, as the official Purchasing Manager’s Index fell to 35.7 in February — the lowest level on record. On the data front, Eurozone PMI Manufacturing came in at 49.2 in February, up from January’s 47.9. German PMI for manufacturing rose to 48.0 in February from 45.3 in January versus a flash reading of 47.8. Elsewhere, the U.K. and EU are beginning a first round of post-Brexit trade talks today.
Against this backdrop, UK’s FTSE 100 sheds 0.62 per cent to 6,539, Italy’s FTSE MIB is lower by 3.58 per cent to 21,190, France’s CAC 40 is down 2.12 per cent to 5,197, while German DAX 30 declines by 2.18 per cent to 11,630. U.S. stock index futures had to give up early gains as well, due to a rise in bonds after the rapidly spreading coronavirus picked up steam and cooled risk-on sentiment again.
In currencies, the dollar is on the defensive against the European counterparts. Also, the USD is trimming gains versus the Japanese yen after an earlier rise to the 108.60 area. USDJPY has encountered the 200-DMA and was rejected from local highs as risk-on tone started to abate. Despite the oversold conditions, the upside potential in the pair remains limited as virus concerns are still there. It looks like traders will continue to sell the dollar on rallies, with additional pressure coming from rising bets on a Federal reserve rate cut during the upcoming March meeting.
In commodities, Brent war rejected from daily highs around $52 and turned slightly negative, threatening the $50 level again. Meanwhile, gold prices tried to get back above the $1,600 figure but have lost some upside steam around $1,610. Still, the precious metal remains firmly in the green on daily charts and may resume recovery attempts as market sentiment has been deteriorating again. In the short term, the bullion needs to stay above the $1,600 handle in order to avoid another sell-off.
Nathan Lambert, Head of Global FX Analytical Department