News from China continue to have a restraining effect on financial markets
EUR/USD pair decreases
Recovery of oil prices
The news about the spread of the deadly strain of coronavirus, which was called COVID-2019, remains the top subject of the news feeds. During the week, the number of patients doubled and now exceeds 65 thousand people. The disease has killed 1384 people. More than 99% of those infected are in China. Investors are seriously concerned about the economic situation in the country, as many companies did not resume operations after the long New Year holidays. Rating agencies and banks have lowered their forecasts on China's GDP growth rate. Most experts agree that China's economy growth will not exceed 4.0% in Q1.
Against the background of the publication of strong macroeconomic statistics and growing fears related to the spread of deadly coronavirus, the U.S. dollar dominated the foreign exchange market.
For the first time since October 2, 2019, the dollar index tested 99.0. Now investors consider the U.S. dollar as the most stable and reliable currency asset. Unlike other G7 countries, the U.S. economy continues to show a consistently high growth rate, while the Fed takes a neutral position and is not yet considering monetary policy easing scenarios.
The situation in the EU is much worse. The statistical indicators still show that there are serious problems in the economy. According to the majority of experts, in these conditions, the ECB will remain inclined to implement a softer monetary policy. At the same time, speaking in the European Parliament, Christine Lagarde noted that the prolonged use of low interest rates leads to the growth of side effects in the economy.
Against this background, the EUR/USD currency pair fell to its lowest trading levels since April 2017 last week.
The British pound managed to successfully resist the dollar's pressure. GBP/USD strengthened by 1% as a result of the week. The main growth occurred in the second half of the week. The driver was the news of the Finance Minister's resignation. Investors expect that the government will increase fiscal stimulus with the new minister.
The market of precious metals
Gold finished the trading week with a rather modest growth. The support factor remains the risks associated with the deadly strain of coronavirus. Growth of the dollar, in which gold is nominated, has a restraining effect on precious metals.
The oil market ended the trading week in the green zone, despite the presence of serious pressure factors. In our opinion, the price increase is primarily due to technical factors. Many investors started fixing short positions on the asset after updating the multi-month lows in trading. Fundamental support for the quotes is provided by the reports on possible reduction of production from OPEC countries. But against the background of threats associated with the spread of coronavirus and the growth of oil reserves in the U.S. and other countries, opportunities for recovery of oil prices remain limited.
Stock indices, despite the negative news from China, finished trading mainly in the green zone. Positive macroeconomic statistics and corporate reporting data from the US were the growth driver. Investors also reacted positively to the steps taken by Beijing and Washington to de-escalate the trade conflict.