European open – China, Fed, BoE, Apple, gold, oil

Markets pare losses but fears persist

European stock markets are making small gains on Tuesday after suffering heavy losses on the opening day of the week, as the coronavirus death toll hits triple figures.

Source – Thomson Reuters Eikon

The numbers are getting uglier by the day, even as extensive efforts are made to contain the virus in China. At this stage, it’s still extremely difficult to say just how bad it’s going to get which makes anticipating the market reaction all the more challenging.

Stocks have already taken a beating, particularly those most exposed to the Chinese economy which will, in all likelihood, suffer as a result of this outbreak. And the worst is unlikely to be behind them, even as they squeeze out small gains in early trade today. This is more a reflection of the pain suffered on Monday, than anything else.

Fed and BoE prepare for rate announcement

It’s tough to focus on anything else right now but the next 48 hours provides plenty of distractions, with the Fed starting their two day meeting today, ahead of tomorrow’s rate decision, and the Bank of England meeting on Thursday, a meeting which became far more interesting after some dovish comments and data earlier this month. The data last week helped pare back expectations of a cut at Carney’s final meeting this week but that just puts more emphasis on the central bank’s communication in the coming months.

Apple phone sales and services revenue eyed

On top of that, we’ll get earnings results from some of the biggest names in the business world over the coming days, starting with Apple today. Apple’s share price is up almost 10% already this year, despite taking a heavy blow at the start of the week. Expectations are high going into the results, with particular interest on iPhone sales ahead of this year’s 5G handset launch. The companies shifting focus to services will also be scrutinized as the company looks to diversify its revenue, as consumer attitudes towards upgrading handsets evolves.

Safe haven gains limited for gold

Gold prices are relatively steady so far today having run into some resistance around $1,580, despite the surge for safe havens recently. We saw this with gold earlier this year when it briefly broke $1,600, only for the sellers to pile in an push price back to $1,555 that very same day. I expect any attempted rallies in the near-term, unless preceded by a serious deterioration in China, will face significant resistance around these levels again.

Gold Daily Chart

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Oil plunge showing little sign of abating

Oil prices have been battered over the last week and it’s not seeing much reprieve today. Brent is below $60 and showing no signs of break back above just yet. The longer it takes authorities to get a grip of the coronavirus and the more it spreads, the greater the potential economic impact and the impact on oil consumption. The reaction has been severe so far but there’s few signs of it letting up just yet, perhaps that will change as we approach last summer’s lows around $56.

Brent Daily Chart

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