Europe To Open Higher

Europe To Open Higher

Europeanmarkets are expected to open higher as investors are ready to shake off thesubdued trading session over on Wall Street.  

The S&P 500 index dropped by minus 0.27%, the NASDAQ index fell by minus 0.08% and the Dow Jones index dipped by minus 0.52%. As a result, we saw a massive surge in the VIX index, it jumped by 6.20% yesterday. An important factor that pulled the US markets lower was Boeing, its stock dipped by 3.3% regulators aren’t sure when they will allow the 737 Max to fly again.

GoldPrices To Tick Higher

Gold pricesare likely to continue to tick higher as investors asses the risk associatedwith coronavirus on the global economy. The toll death due to this virus roseto six deaths—some reports even say nine deaths—over in China. It is a concernfor financial markets because the US reported its first case yesterday. Havingsaid this, there isn’t any case reported in Europe yet but it is only a matterof a time when we see a flashing headline because the virus is airborne andmillions of people travel for the Chinese Lunar New Year holidays.

Remember,after India, China is an important player in the consumption of physical gold,although Chinese consumption of physical growth has abated last year; it brokeits three-year uptrend due to the slowdown in Chinese economic growth and alsodue to the trade war between the US and China.

Oil SuffersFrom More Pain

Oil pricesare maintaining their three days downtrend and the report by the InternationalEnergy Agency punished bulls further. The pain is ongoing as the head of theagency said at Davos that the market is likely to be in surplus by a millionbarrels per day. The agency forecasted a market surplus during the first halfof 2020, and this points to a soft demand equation. The pessimistic forecasthas abolished any possibilities of upside move for the commodity which werebuilt on the back of the disruption of oil supply in Libya.

SterlingLikely To Move Lower

In thecurrency markets, Sterling is modestly flat but we expect the currency to dropas traders digest another flashing headline. Recent reports suggest that the EUis preparing a worse trade deal than Canada or Japan for the UK. This is goingto raise alarms for UK businesses. Boris Johnson, who initially started thistit-for-tat game is creating only more uncertainty for the UK’s economy.

Euro Call Premium Ticked Higher

As for theEuro, the risk reversal rally has made the call option premium more expensive.This means that traders are expecting the currency to move higher ahead of thekey event- the ECB monetary policy statement. Having said this, it is alsoimportant to keep in mind that the increase in call option premium has alsosomething to do with Trump’s recent comment during which he once again took astab at the Fed. His comfort continues to grow and he isn’t pleased with thecurrent interest or with the pace of cutting interest rate.

We always thought it was better for any economy when its central bank isn’t dictated by the ruler of the country as the central bank should be dependent on the economic data.