Financial markets worry about the new threat to the global economy as the fast-spreading coronavirus shakes up the global economy.
Efforts by Chinese authorities to restore calm following the coronavirus outbreak supported sentiment in world markets. China’s central bank cut the interest rate on its medium-term lending on Monday. Beijing has also announced plans to roll out targeted and phased tax and fee cuts to help businesses.
After an extended Lunar New Year holiday, China urgently needs to get back to work. But there is a proposal to delay the opening of annual session of parliament, due on Feb. 24.
Across mainland China, the total number of coronavirus cases rose by 2,048 to 70,548, with 1,770 deaths according to officials. Outside China, more than 500 infections have been confirmed, mostly in people who travelled from Chinese cities.
Most market players expect growth in the United States to remain stronger among the developed world. However, data published on Friday provided a mixed picture. U.S. core retail sales was flat last month, and Industrial production also shrank more than expected by 0.3%. The US Fed Chair told Congress the U.S. economy was in a good place last week. But Powell warned that the virus outbreak may have some impact on the U.S. economy.
A meeting of euro zone finance ministers was also in focus for any signs that the bloc will loosen fiscal policy to shore up its economy.
START TRADINGLQDFXperts – Weekly Forex report
U.S. markets will be closed on Monday for the Presidents’ Day holiday.
EUR/USD slipped over 1% for a second straight week posting considerable gains at the end of the week. The Euro, which hit a 33-month low on Friday, is down 2.3% since the start of month – the worst performance among G10 currencies. Data on Friday hinted at a soft European economy.
GBP/USD continues to show strong swings. The pair rebounded last week, gaining 1.2% after sliding 2.4% a week earlier. Attention this week turns back to the health of the British economy, with employment, inflation and retails sales numbers all due. Sterling was up more than 1%, setting for its biggest weekly rise in two months. Investors ramped up expectations the new British finance minister would unveil a more expansionary budget next month.
The Dollar/yen was unchanged last week, as the pair closed the week slightly below the key 110 level. Japan’s economy, the world’s third-largest economy, shrank 1.6% in the three months to December, the largest drop in six years.
The AUD/USD recorded a winning week, the first time that has occurred since late December. The coronavirus shakes up the global economy and weighs on investor risk appetite. The Australian dollar is used as a proxy for risk on Chinese assets because of Australia’s high trade exposure to the Asian giant. With China’s economy expected to take a sharp hit from the virus, the Australian economy will also be damaged.
The USD/CAD reversed directions last week, as the Canadian dollar finally recorded its first winning week of the year. The Canadian dollar managed to hold its own last week but is down 2% this year. The coronavirus has dampened risk appetite and sent oil prices lower, so the Canadian currency will likely remain under pressure.
LQDFXperts – The week ahead – Coronavirus shakes up the global economy
The coronavirus shakes up the global economy and continues to weigh on investor risk appetite with China struggling to contain the outbreak. Trading is expected to be light as financial markets in the United States will be shut for a public holiday.
- On Tuesday (18.02) the release of the ZEW Indicator of Economic Sentiment, climbed to 26.7 in January, is expected. Another strong score is expected in February, with an estimate of 20.0 points. ECB eyes changes in business confidence.
- On Wednesday (19.02) the focus shifts to UK Inflation. The weak British economy has been unable to generate much in the way of inflation. Analysts expect CPI to climb to 1.7% in January. This could ease the pressure of the BoE regarding interest rate decision. Also, Canadian CPI is due and its forecast for January stands at 0.3%, compared to 0.0% in December.
- On Thursday (20.02) all eyes are on UK Retail Sales, ECB Monetary Policy Meeting Accounts and FOMC Meeting Minutes. At the January policy meeting, ECB President Lagarde said that she would prefer higher interest rates. Investors will be combing through the minutes, looking for hints regarding future monetary policy. The FOMC minutes will provide details of the most recent policy meeting covering the month of February where the central bank held rates steady. Policy makers signalled that interest rates will remain unchanged in the course of the year.
- On Friday (21.02) all eyes are on Eurozone Flash PMIs (France, Germany, eurozone). Manufacturing PMIs are expected to weaken in February, and U.S. Manufacturing PMI. Experts expect minor change in the February release.
Follow this week’s economic calendar.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, CNBC, FX street