US Open – China’s efforts make virus selloff take a day off, AUD rises post RBA, BOE bets price no cuts following construction data, Oil hits rock bottom, Gold falls

Global indexes are positive, commodities are showing signs of life, yet the virus continues to spread at a rapid pace, as containment efforts are stepped up.  Today’s green on the screen started off in Asia, China is showing they mean business with their liquidity injections.  The saying has always been “don’t fight the Fed”, but it may now have to include the PBOC.

The coronavirus has yielded its second death outside mainland China and continues to spread as the confirmed case count rises to 20,438.  The news is hardly uplifting on the virus front, so today’s bounce may not go much further.  The world’s second largest economy is shutdown and it will be tough to see US stocks recapture record high territories until the virus peaks.

Many Chinese provinces are extending their shutdowns to February 10th.  Uncertainty is growing that factories will not reopen next week and that could be the catalyst for risk aversion to return.

FX

The Australian dollar is the best performing currency after the RBA downplayed the bush fires and coronavirus outbreak risks as temporary.  With the labor market having a good outlook and the housing market reflation story, the RBA is in no rush to resume interest rate cuts.  The bank delivered three cuts during the second half of last year and expectations are for them to be patient until possibly the summer.

The British pound rose after better than expected construction data showed the highest reading since last Spring.  Rate cut bets by the BOE are fading, with money markets pricing in no cuts for 2020, as we have seen a string of better than expected from the UK economy.  Yesterday, the UK manufacturing PMI reading showed its first non-contraction in nine months and tomorrow’s final services PMI reading could confirm the recent upswing that has been in place over the last quarter.  The British pound seems it might be stuck in a wide 1.28 to 1.34 range this year.

Oil

Oil prices are rebounding after hitting rock bottom as coronavirus fears ease and expectations grow that OPEC + will deliver deeper production cuts to combat the sudden drop in demand from the world’s largest crude importer.  Risk appetite is riding high across all financial markets as the expected coronavirus downturn will be cushioned by central banks.

The coronavirus took West Texas Intermediate crude to bear market territory and saw the $50 a barrel level tentatively breached overnight.  The coronavirus seems to be contained to China and optimism is growing that the US will have a little economic impact.  Oil volatility will remain high and any sustained rallies will likely see sellers emerge. If OPEC + delivers anything less than an additional 1 million barrel per day cut, oil could fall further into bear market territory.

Gold

Gold is selling off as a wave of risk appetite that stemmed from Chinese liquidity injections and some optimism containment efforts will prevent the coronavirus from turning into a world epidemic.  The virus is in 25 countries but has only two deaths outside of mainland China.

Risk appetite and some cautious comments from Barrick Gold Corp CEO Bristow about global gold production continue to fall is weighing on gold prices today.

The Tuesday risk-on bounce is likely to lose steam and gold buyers will likely try to defend the $1,550 an ounce level.

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