February 21, 2020

European Futures Trade Lower

European futures are picking up their momentum from Wall Street where we experienced extensive sell-off. If the sell-off really picks up momentum, it could push the FTSE 100 index in a negative territory for this week. So far, the index is set to record a positive week.

US stocks fell yesterday because investors were concerned about slowing global economy due to the outbreak of Coronavirus. The sell-off started during mid-day yesterday and it pushed the Dow Jones by 128 points or 0.44%. The S&P500 index also fell -0.38% and the Nasdaq index closed with a loss of -0.67%.

According to Global Times, there had been a sharp increase in Coronavirus victims at a hospital in Beijing in China. Market participants are confused about these daily headlines which keeps on reporting conflicting information—some day we get a report which says that the number of virus victims are slowing and then it starts to increase again. This conflicting information increased the fear among investors and they have lost their appetite for riskier assets. In other words, traders are quick on taking profit off the table the moment they hear that the virus situation is not under control.

OIL

Oil prices are down again because of lower demand. Oil traders do not understand how the epidemic is going to hit the oil demand, but they do know that it will create negative impact on it. The coronavirus has spread across China and we have no reaction from oil producers in terms of a supply cut. The crude inventory data released yesterday was positive for the oil price, but investors are more focused about Coronavirus’s impact. The economic activity is taking longer to resume than usual if we compare this with SARS virus situation and this is scaring oil investors.

Economic Data – PMIs and Forex

As for the forex market, the Euro-dollar is way oversold on a daily time frame. Although, the price is showing some signs of life, but investors are going to pay close attention to the upcoming flash manufacturing and services data out of Europe. The German manufacturing number matters the most, for Germany is the biggest economy of the Eurozone, and the forecast for the manufacturing number is 44.8—well below the expansion territory of 50, and for services it is 53.9.

At 09:30, we have the UK’s  flash manufacturing PMI number, if we see the number crossing the 50 mark, it would confirm that the UK’s economy is defying the Brexit woes from all sides. Remember, we have seen strong reading from the UK retail data and the inflation number was solid as well.