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  • The week ahead is fraught with risk themes and events.
  • Coronavirus spreading faster than SARS – to keep risk appetite deflated, eyes on oil prices.
  • AUD and equities back under pressure in the close last week pertaining to coronavirus. 
  • Fed’s Powell to testify this week and RBNZ likely to echo risk sentiment despite improving economic data.
  • UK GDP and US CPI are the main economic data events. 

The open today should be relatively tame considering the number of risk events ahead this week and how the market is already positioned following Friday’s US session close and a rampant US dollar, risk-off flows and a drop in US stocks pertaining to the coronavirus fears. 

FX Market recap

  • For a quick recap for Friday’s close, see here: Forex Today: Risk-off backs dollar and yen
  • The US dollar and AUD were the top performers although the coronavirus and subsequent implications for the Australian economy due to the contagion of economic prospects for China and trade exposes a downside bias for the immediate future – AUD/USD marked its lowest levels since October 2019. 
  • The DXY scored its highest levels since October 2019 to 98.72, supported by risk-off flows and a series of solid US data.

Weekend updates

There has not been a whole lot happening on the geopolitical front this weekend, although the main focus is with the coronavirus. There is a little bit for everyone here, both positive sentiments from the WHO accompanied by alternative headlines, quite to the contrary as the virus continues to spread globally.

  • Coronavirus: Coronavirus update: A slight stabilisation in the number of cases, still concentrated in Hubei – the virus is spreading at a compound daily rate of 19.2%, far higher than SARS, according to analysts at TD Securities who argued that “the fear factor is hating up again and news flow is unlikely to get better soon”. For markets, the damage may already have been done though and the contagion of the economic fall-out is starting to be priced in yet again to the markets, likely weighing on risk appetite for this week’s open, following last weeks performance in he global benchmarks, as follows: DAX 13438 -0.22%, DOW 29014 -0.21%,  FTSE 7437 -0.11%, HANGSENG 26979 -0.12%.
  • Oil: The price of oil will be in focus, as bulls leave their commitments on fears of the economic damage to demand in relation to an expected economic slowdown. Chinese growth could slow to 4-4.5% YoY in the first quarter (Q1) and result in a downgrade in 2020 forecasts to well below 6%. OPEC+ ministers are scheduled to meet on March 5-6 to discuss a possible emergency output cut mid oil demand worries driven by the spread of the virus which originated in China: Iran supports unanimous OPEC output cut plan

Key events & schedule

We have a number of key events scheduled for the week ahead. While the UK reports Gross Domestic Product (fourth quarter) and the US Consumer Price Index as the key data releases, the major focus will likely be with Fed Chair Jerome Powell’s Semi-Annual Testimony. Markets will be looking for a dovish tone which should echo the January 29th press briefing when rates were left on hold, but where Powell also signalled his discomfort with inflation persistently below target. 

“Policy is on hold for now, but with an easing bias, reflecting a new approach to inflation as well as lingering growth concerns. Officials appear to have adopted some form of average inflation targeting, even as the review continues. The Shelton and Waller nomination hearings will likely be dovish as well,”

analysts at TD Securities explained. 

Elsewhere, we also have the Reserve Bank of New Zealand where despite an improvement in Gross Domestic Produce and Consumer Price Index, the central bank may refrain from an exceedingly optimistic outlook considering the risks the coronavirus poses to the economy.

  • China (10 Feb): Inflation (Jan), CPI (YoY).
  • UK (11 Feb): GDP Data, Q4 GDP (QoQ), Dec GDP (MoM).
  • US (11/12 Feb): Fed Chair Powell’s Semi-Annual Testimony.
  • NZ (12th Feb): RBNZ MPS.
  • Sweden (12 Feb): Riksbank.
  • US (13/14 Feb): Headline CPI (MoM), Retail Sales (MoM).
  • Germany (14 Feb): Q4 GDP (QoQ).

Chart of the week

More to come…