US Open – Wall Street hits the sell button, Virus concerns top earnings, Oil remains in trouble, Gold’s bright future

The coronavirus epidemic continues to weigh on Wall Street.  170 people have died and more than 7.711 cases have been confirmed. The virus impact on Chinese industrial production and exports will likely force the PBOC’s hand into using the bazooka of stimulus they were saving in case the US-China trade war took a turn for the worse.  Until markets are confident the virus has peaked and the outbreak is finally contained, US stocks will struggle despite strong earnings. 

On the data front this morning, the US economy saw fourth quarter growth come in a tick higher than expected at 2.1%, but the rest of the data was bleak.  Personal spending and business investment decelerated and that could mean signs of weakness with the US consumer are around the corner. 

US stocks are heading lower as the negative economic impact of the virus on Asia will likely see multi-nationals have a poor first half of the year.  US stocks needed a reality check with their valuations and we could see investors use the coronavirus economic blow as an excuse to head for the sidelines.  The bond market is already telling us its time to sell, so a 10% correction might be in the cards for US stocks. 

BOE

Bank of England (BOE) Gov Carney had the markets ready for a cut, but in the end he decided he will let Andrew Bailey have the ammunition to cut rates if the risks to the outlook pickup.  The British pound rose following the rate announcement and press conference as many traders were expecting either a 25 basis-point insurance cut or a dovish hold.  Money markets are no longer pricing in a cut in 2020 and cable is trading closer to the 1.3100 level. 

BOE watchers will eagerly await Andrew Bailey’s term which begins in March.  The pound will be hampered by Brexit negotiations and global growth concerns that could keep the dollar bid. 

Oil

Oil’s collapse may not be over after key US data shows the flight-to-safety may continue and as the coronavirus continues to spread.  The virus in China will have a severe short-term economic impact with some analysts seeing roughly a percentage point drop to the 5% level for annual GDP. 

The US economy advance reading of fourth quarter GDP came in line with estimates but the steep drop in personal consumption, prices and core PCE will raise concerns that the record long economic expansion is running out of steam. 

The coronavirus epidemic is getting worse and West Texas Intermediate remains vulnerable of breaking below the $50 a barrel level.  China is now welcoming help from the WHO, a shift in policy after refusing support from the CDC.  If the virus is deemed a public health emergency, we could see stricter travel restrictions that will only hurt the demand outlook for crude.  If WTI breaks below the $50 level, prices may not see much support until the $47.70 region. 

Gold

Investors seeking a substantial pullback with gold prices may end up being disappointed and chasing a surging market.  The coronavirus economic impact is growing and a flight to Treasuries and gold will likely remain the favorite trades on Wall Street.  Gold seems poised to make another run at the highs made earlier in the month. 

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