Monday, January 27 was a day of typical risk aversion. In line with theory, shares, oil, copper, emerging market currencies lost value, while gold or treasury bonds and the Japanese yen were gaining. Getting rid of risky assets was to be the consequence of concerns about the greater spread of coronavirus than previously thought and possible impact on Chinese GDP. Today, however, the markets calm dawn. For long?
Futures contracts on US indices are traded at over 0.5 percent this morning, like the contract for the German DAX index. For the German stock exchange and the German index, we have known the results of the company with the largest capitalization included in the main stock index, namely SAP AG. The German giant announced today that net profit and revenues for the fourth quarter of 2019 have increased compared to last year and further revised the forecast for 2020. SAP reported that net profit was EUR 2.18 billion in the fourth quarter compared to EUR 1.79 billion a year earlier. On the other hand, negative information from Germany is recording the first case of coronavirus in Bavaria.
In the United States today, the results of companies, including Apple, could be also important for the whole market sentiment. The publication will take place today after the session, and in the morning there was information that the company from Cupertino intends to increase the production of iPhones to 80 million units in the first half of 2020, which would mean an increase of 10 percent y/y. This information could potentially have an impact on the rise of futures contracts on major US stock indices in the morning. In addition to the current report, information on the company's forecasts will be important. There may be doubts here that Apple has 381 production facilities, of which two are located in Wuhan, China and 69 in Suzhou, which is not closed, but the holiday break was extended there by an additional week.
It seems that initial panic has been contained not only on the stock indices, but also on the oil market, which was losing the sixth day in a row yesterday, and the price of the WTI barrel was at its lowest since the beginning of October 2019. Investors in the oil market seem to be reacting on travel warnings, which has a significant impact on global transport. There are also other restrictions that may affect GDP in the world's second-largest economy. OPEC countries may, as a consequence of such a strong drop in prices, take further actions that can already at the next meeting in March decide to reduce the supply on the market in order to try to stabilize prices.
On the currency market, the Australian dollar and New Zealand dollar, the currencies that suffered most yesterday on the massive risk retreat, seems to be stabilizing. However, the earlier dynamics in the downward impulses were very significant, and stabilization after strong declines may only mean a waiting for the potential next impulse.
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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