The beginning of trading on the futures market after the weekend quite clearly seems to indicate an increase in risk aversion among global investors. Futures contracts on stock indices seem to be falling while rising on gold or on US bonds along with the sell-off of EM currencies, including the Polish zloty.
It seems that several factors overlap this weekend to bring about the current situation. Firstly, the number of new cases in Italy has increased dramatically. This country is now the largest virus concentration in Europe. As a consequence, other countries began blocking transport connections with Italy, and some sporting and cultural events were canceled to prevent the further spread of the coronavirus. In addition, Italy itself, the epicenter of the virus in Europe, introduced a travel ban that affected 50,000 people. All of this may have negative economic consequences.
However, the situation has not worsened only in Italy. In Korea, where the country's main stock index dropped by almost 4 percent today, the infectious disease alert was raised to the highest possible level after the number of cases increased. According to Bloomberg, South Korean President Moon Jae-in asked his secretaries to consider developing an additional budget with the consent of parliament if needed. A "bold" injection of money is needed to revive the regional economy.
Another important factor that could have alarmed investors was the statement issued after the G20 meeting. G20 finance ministers warned of threats to global growth and expressed concern at the global economic impact of the coronavirus outbreak, which is taking an increasing toll outside China. They also added that governments may consider coordinated fiscal stimulus if global growth does not rebound. These events also appear to affect AUD, NZD, and CAD. Popular commodity currencies may depreciate as concerns about the global economy increase.
Investors after the weekend seem to immediately discount the latest information, and the next important events are macroeconomic data releases, especially from China. The most important data will be published on Saturday, February 29. These will be readings of PMIs for services and for manufacturing sector, which may indicate the scale of the slowdown in the Chinese economy.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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