European open – COVID-19, gold, oil, bitcoin

FOMO dip buying losing popularity

The week is expected to get off to an ugly start, as investors fret about the rising number of coronavirus cases outside of China.

South Korean stocks got whacked overnight as the number of confirmed cases in the country spiked by 161 to 763, with the death toll rising to seven. Italy now looks very vulnerable as the country is seeing the sharpest rise of new cases in Europe, which will make investors very nervous.

We’ve gone from deceleration in China to acceleration elsewhere. It seems investors may have been a little premature in declaring victory which is the risk of the FOMO dip buying trend that we’ve become all-too familiar with.

With the number of cases now picking up outside of China and companies providing intermittent updates about the impact on business, we may see a more dramatic re-evaluation of the economic consequences of the virus.

The IMF warned of a modest hit to growth in front of the G20 over the weekend but that could become more dire as the number of infections outside of China accelerates. Interestingly, they references the support of monetary policy and easing trade tensions to the economy. No major change to fiscal attitudes then, it would appear.

Gold continues to see safe haven flows

It’s gold’s time to shine, as investors abandon their unwavering commitment to the stock market and seek out safe shelter. The gold rally has been gradually building since the start of the year but it really exploded last week as it finally broke $1,600 and took off. We’ve seen some profit taking today around $1,680 but with risk appetite not improving, it’s tough to imagine that holding for long, with the yellow metal already having $1,700 in its sights.

Oil tumbles as cases outside China rise

Oil’s recovery was short-lived, as traders begin to worry about growth prospects once again, and not just within China. Brent is off more than 2% already this morning and it could get much uglier if the virus isn’t contained quickly. Crude has fallen heavily on fears of a broader slowdown and this is with the IMF predicting that only 0.1% will be shaved off global growth as things stand. It’s a long way down if the spread accelerates outside of China.

Bitcoin hovers around $10,000

There isn’t an enormous amount to say about bitcoin at this point. The safe haven argument isn’t much of an argument any more, thankfully. Price is now hovering around $10,000, with $11,000 above and $9,000 being far more interesting. The recent rally ran into difficulty in the middle this morning, which suggests the latter may look a little more vulnerable at the minute but broadly speaking, I think we’re just seeing a little profit taking. Even if bitcoin it happens. The cryptocurrency is up 36% this year, not bad going by February.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.