Asian stocks traded in the green zone on Friday while European stocks show mixed performance as Thursday panic associated with a surge in confirmed cases of coronavirus has failed to gain momentum. ECB and the Fed have played down concerns about the virus outbreak, reiterating that based on the current developments, an impact on the economy will be limited. The head of an influential lobbyist group in the United States which defends the interests of companies doing business in and with China has also supported optimism saying that he is confident in China’s ability to boost imports from the US. Recall that according to the agreement China has to increase purchases of US goods by $100 billion per year in four trade categories – agriculture, energy, services and manufactured goods.
China reported that the number of confirmed cases rose by 5 thousand on Friday compared to 15 thousand on Thursday. As I noted in my Thursday article the number of confirmed cases was expected to decline as the changes in accounting rules accounted for the most part of the increase in confirmed cases on Thursday. At the same time suspected cases rose by 2800 people which is a leading indicator of the outbreak. The ongoing complacency of stock market investors probably reflects the expectations that the outbreak impact won’t last long, and the world economy will quickly collect itself from the shock. Chinese government has announced massive stimulus measures through fiscal and interest rate channels and reiterated that it doesn’t give up on economic commitments for 2020 (later changed the wording to less ambitious “will strive to achieve the goals”). World central bank officials labelled the outbreak of coronavirus as secondary risk, i.e. that requires monitoring, but not so significant as to affect policy settings.
Chinese stock index CSI 300 rose 0.7% on Friday, recovering 95% from panic sales on the first day of trading after the Chinese holidays.
The European currency fell to a three-month low amid weak data from the manufacturing sector and political risks in Germany. This week, the single currency lost 1% against the dollar. On Friday, the data on GDP growth in 4Q fell short of expectations (+ 0.9% against the forecast of 1.0%), increasing pressure on the European currency. The US Consumer Price Index and US jobless claims beat expectations, boosting demand for the dollar. American assets now look more attractive due to the amazing resilience of the economy. In a speech to the Congress this week, Jeremy Powell made a rather strong statement about the fact that “there is no reason to not expect economic pickup”. There is a growing possibility that EURUSD will break through the support at 1.08 after the release of US retail sales data today, exposing a more serious hurdle at 1.07.
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