January 22, 2020

Europe To Open Higher

European markets are expected to open higher as investors are ready to shake off the subdued 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.

Gold Prices To Tick Higher

Gold prices are likely to continue to tick higher as investors asses the risk associated with coronavirus on the global economy. The toll death due to this virus rose to six deaths—some reports even say nine deaths—over in China. It is a concern for financial markets because the US reported its first case yesterday. Having said this, there isn’t any case reported in Europe yet but it is only a matter of a time when we see a flashing headline because the virus is airborne and millions 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 broke its three-year uptrend due to the slowdown in Chinese economic growth and also due to the trade war between the US and China.

Oil Suffers From More Pain

Oil prices are maintaining their three days downtrend and the report by the International Energy Agency punished bulls further. The pain is ongoing as the head of the agency said at Davos that the market is likely to be in surplus by a million barrels per day. The agency forecasted a market surplus during the first half of 2020, and this points to a soft demand equation. The pessimistic forecast has abolished any possibilities of upside move for the commodity which were built on the back of the disruption of oil supply in Libya.

Sterling Likely To Move Lower

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

Euro Call Premium Ticked Higher

As for the Euro, 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 the key event- the ECB monetary policy statement. Having said this, it is also important to keep in mind that the increase in call option premium has also something to do with Trump’s recent comment during which he once again took a stab at the Fed. His comfort continues to grow and he isn’t pleased with the current 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.