With the US taking a day off yesterday, suddenly the glass has gone from being half full to being half empty this morning. Looking around, the dark clouds have gathered and trading outlook has taken on an increased edge of risk aversion. Ratings agency Moody’s has cut the outlook for Hong Kong, whilst the IMF has cut its forecast for global economic growth which it sees as remaining “sluggish”. Add in the coronavirus that is spreading through China that is being talked of in the same breath as the SARS outbreak of 2002 and we have a risk outlook in retreat this morning. This is driving bond yields lower (US 10 year yield off almost -5 basis points from Friday’s close), whilst the starkest move to reflect risk aversion has been a sharp move higher on the Dollar/Yuan rate above 6.9000 again. Add in a stronger yen, a mini breakout on gold and equities dropping back and there is pretty much the full set. Quite how far traders take this is another matter though. Reaction to the Moody’s downgrade and IMF forecast is more likely to be knee jerk and short term. This seems to be a fly in the ointment rather than a broader malaise setting in this morning. The potential fallout for China of the coronavirus though is as yet unknown. Back in Europe, eyes on the German ZEW this morning for the outlook of the Eurozone’s major economy.
Wall Street was shut for Martin Luther King Day yesterday but futures have resumed around -0.4% lower today. This has dragged Asian markets lower, with Nikkei -0.9% and Shanghai Composite -1.4%. In Europe, the reaction is equally negative, following US futures, with FTSE futures -0.4% and DAX futures -0.6%. In forex, the main mover is JPY recovering lower ground, with the commodity currencies (AUD, NZD and CAD) underperforming by around -0.2%. In commodities, gold looked to be breaking higher, but is just paring those earlier gains, whilst oil is approaching -1.0% lower.
There is a European focus to the announcements o