(18 February 2020)DAILY MARKET BRIEF 2:European, US futures hint at negative start. Pound falls below $1.30

Gold climbed to $1587 an ounce as the Japanese yen strengthened against the US dollar on increased safe haven demand.

WTI crude slipped below $52 a barrel on revived worries that the impact of coronavirus may be longer than what many investors want to believe. The stimulus measures could curb the economic slowdown but may not reverse it to justify a v-shaped recovery in oil prices. Chinese demand is expected to fall by 3.4 million barrels a day in February according to recent research, and an average of 1.5 million barrel in the first quarter. Expectation that OPEC and its allies will further trim production to match the significant slump in Chinese demand could give some reassurance, but the market anticipates no more than a 0.5 to a million bpd cut in OPEC production. That’s not enough to absorb the additional supply due to lower Chinese demand. Therefore, we expect the selling pressure to continue in oil markets.

In the currency markets, the euro extended weakness to 1.0822 against the US dollar. Due today, the ZEW surveys should confirm a worsening economic sentiment in Germany and the Eurozone in February due to the coronavirus outbreak. Soft data should maintain the expectation that the European Central Bank (ECB) rates will remain at the current levels, or below, for a longer period and increase the selling pressure on the single currency for a deeper sell-off toward the 1.08 mark against the greenback.

The DAX shortly traded at record high on Monday, boosted by a cheaper euro and the expectation of more stimulus from China to boost demand but the positive momentum remained contained. The DAX futures (-0.84%) hint at a slow start in Frankfurt on Tuesday.

Across the Channel, the pound slipped below the 1.30 mark against the US dollar ahead of the UK’s December employment data. Today’s release should confirm a further slowdown in average earnings to 3.1% in three months to December from 3.2% printed a month earlier – which was already the lowest read in more than a year. But the expectation that the data should improve posterior to the snap election may attenuate a data-triggered sell-off. Traders could be tempted to buy Sterling below 1.30 ahead of Wednesday’s inflation data, which should confirm a decent pickup to 1.7% in January from 1.3% printed a month earlier.

FTSE futures (-0.87%) indicate that the British blue-chip index could slip below the 7400p mark at the open as energy stocks could remain under the pressure of lower oil prices and HSBC could weigh on the index as well.

HSBC holdings fell 2.27% in Hong Kong after announcing yet another round of massive restructuring which didn’t charm investors at the first sight. In the continuation of its never-ending restructuring efforts, the bank will shrink its European and US investment banking businesses, trim its retail business by a significant 30% and aim to put in place a $4.5 million cost cutting program to face the Hong Kong protests and the coronavirus shock. It will strengthen its investment banking units in Asia, which accounts for 90% of bank’s profits and Middle East instead.

By Ipek Ozkardeskaya