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

Nerves Being Tested

European stocks are expected to open in the red again on Friday, weighed down by various corporate warnings and new coronavirus cases outside of China, including one fatality.

Source – Thomson Reuters Eikon

Perhaps the reality of the situation is starting to hit home for investors or maybe, and probably more likely, they’re using the slew of warnings to take some profit and risk off the table. As we’ve seen before though, this is a dip buying environment so it’s probably only a matter of time until investors pile back in on the “discount goods”.

Their nerve may be tested in the coming weeks though, with many more companies likely following Apple, Adidas and others in lowering earnings expectations well ahead of the end of the quarter. Whether the exposure is the local market, exports, the supply chain, or all of the above, many companies are going to be negatively impacted by the coronavirus and we should get a better idea of how much.

Then there’s the new cases in neighbouring countries which, if not controlled early, could pose fresh problems. A fatality in South Korea, along with 52 new cases, has rocked domestic stock markets and we could see more examples of that in the coming weeks. Investors have taken the virus in their stride so far but that could still be tested.

PMIs to shed light on response to coronavirus

We’re not going to ease our way into the weekend this week, with PMI data from across Europe and the US providing some quick feedback on how firms are viewing the outbreak. It’s been difficult to quantify the economic damage of the coronavirus until this point so data points like this may provide more clarity. Expectations seem high ahead of the releases but I wonder whether there’s a sizeable buffer that traders will allow for on this occasion.

Gold only looking upwards

Gold is just powering on, no looking back after breaking through $1,600 which had caused it so many problems earlier in the year. It’s trading at a seven year high and momentum behind the rally is only growing stronger. As stocks have stalled on the back of various warnings, gold bulls have seized the opportunity with both hands, propelling the yellow metal higher even as the dollar index has made similar strides towards 100, to trade at a three year high. This is typically a headwind for gold but it’s not slowing it down this time. Gold may find some resistance around $1,640 but I wouldn’t bank on anything slowing it down at this stage.

Gold Daily Chart

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Brent retreats after touching $60

Oil’s remarkable winning streak is coming to an end. After eight days of gains, crude is taking a breather, having managed an impressive 10% rebound in that time. The change in fortune has been spurred on by the deceleration in new cases in China, giving many the impression that the flickering light at the end of the tunnel is near. We’re seeing some profit taking now after Brent touched $60 before retreating back. This is now the next big test for oil, which is still well off its pre-coronavirus levels. $60 is probably about fair though for now, so I wouldn’t be surprised to see it linger around here in the near-term.

Brent Daily Chart

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