After a positive start, European stock markets turned red as risk sentiment deteriorated again. Risk-off mood took the central stage amid the reports that Thailand confirmed first coronavirus case of local person-to-person transmission, first two cases of the new coronavirus were confirmed in the UK, and Italy reported it is set to declare state of national emergency after confirming first two cases of the new coronavirus. The virus has now spread to at least 18 other countries.
The regional equities are headed for the worst weekly loss in months amid fresh negative news on the new virus and weaker than expected economic data out of the Eurozone. Gross domestic product grew by 0.1% in the fourth quarter versus +0.2% expected. Also, investor are nervous as today, the U.K. is set to officially leave the European Union at 11:00 p.m. London time. By the way, both S&P and Moody’s have warned already that Britain’s credit rating would be under pressure if a post-Brexit trading relationship limits U.K. access to the European single market.
Against this backdrop, UK’s FTSE 100 sheds 0.84 per cent to 7,320, Italy’s FTSE MIB loses 1.37 per cent to 23,454, France’s CAC 40 is down 0.60 per cent to 5,836, while German DAX 30 declines by 0.39 per cent to 13,105. US stock index futures indicate a significant decline, with Doe futures are set to lose more than 200 points at the open on the news about a fast-spreading coronavirus and ahead of another series of quarterly earnings. Caterpillar, Chevron, and Exxon Mobil are scheduled to report earnings before the opening bell.
In currencies, EURUSD resumed the recovery in recent trading despite weak European data, as dollar demand has waned somehow. In part, it was due to comments by Italian economy minister. According to Roberto Gualtieri, the domestic economy will bounce back in Q1 this year, while Q4 GDP contraction is due to calendar effects. The official also expressed confidence in the adopted measures that will support growth. Still, the euro struggles to regain a sustainable upside momentum as risk-off trades continue to prevail in the global financial markets. The pair now needs to make a clear break above the 1.1040 resistance in order to retarget the 100-DMA.
Meanwhile, oil prices are heading lower again, as the bullish attempts failed below $59 on Thursday. Today, Brent is back below the $58 handle and looks poised for further losses as virus-related concerns are still there. The immediate support now comes at $57 and then around the recent low of $56.70. Later today, Baker Hughes reveals its weekly oil rig data, and should the activity in the shale oil fields pick up, the selling pressure could intensify in the short term.
Nathan Lambert, Head of Global FX Analytical Department