Slow Monday as markets remain fixated on virus updates, German political uncertainty, Oil’s death by virus, Gold shines

US futures and European stocks are off to a slow start as investors continue to digest every incremental coronavirus update on what is expected to be a quiet Monday that has no major economic data releases and only a couple corporate earnings updates.  Asia started the week on a softer note after coronavirus death toll rose to 910, surpassing the amount the SARS virus.  Stocks are off the overnight lows as some of the larger Chinese manufacturers seem set to return to work this week.  Foxconn got approval to resume production in Zhengzhou, the main production point for iPhone 11, with most of the other manufacturing giants all to be poised to back to work within the next couple of weeks.  GM will resume Chinese production on February 15th, Hyudai Motor will resume their domestic production tomorrow, both Sony & LG Display resumed normal operations today, while Tencent asked workers to stay at home until February 21st. 

The coronavirus may be nearing its peak and even though it is spreading outside of Wuhan, the Chinese epicenter of the global outbreak, investors seem poised to chase yield.  If the virus peaks in mid-to-late February that should mean some emerging markets will thrive, the Treasury trade will keep the dollar stable and Europe will lag until we see the global reacceleration story pickup in the second half of the year.  The risk-on rally that took US stocks to uncharted territory might not see much of a slowdown if the virus impact only delivers one bad quarter of data. 

 

Merkel’s Replacement Quits

Political uncertainty is not what the German economy needs.  Annegret Kramp-Karrenbauer(AKK), Merkel’s heir apparent is standing down  as the leader of the Christian Democrats and will not run for chancellor.   

Since last week’s election in Thuringia occurred, German politics are in disarray after the left’s Bodo Ramelow lost to the FDP’s Thomas Kemmerich.  Finding out who will become the next Chancellor will take months with financial markets allowing this story to brew.  Investors will want to know if the CDU stays center or if they will deviate a little to the right. 

The euro is lower mainly on concerns that the eurozone’s export dependent economy will struggle in the first half of the year due to the German slowdown that will likely get extended due to the coronavirus impact.

 

Oil

OPEC + dropped the ball and now hopes for an oil rebound will rely on continued optimism that the coronavirus will peak over the next few weeks.  The lack of enthusiasm from the Russians to deliver an additional 600,000 barrels per day in deeper production cuts could prove cost in stabilizing prices in the short-term.  West Texas Intermediate crude remains vulnerable to the mid-$40s if we see a setback in a return of normalcy in Chinese travel and trade.  The world’s largest crude importer, China is aiming to only have a bad first quarter, so the next couple of weeks will be key for demand expectations. 

 

Gold

Gold prices continue to benefit on uncertainty with how much and how long the coronavirus will weigh on global growth.  Expectations are growing for the virus to peak in a few weeks, but if we see any new outbreaks or continued spreading of the disease outside of China, demand for safe-havens will soar. 

Gold seems poised to make another run at the $1,600 level and if it can get there, we could easily see a failed triple-top pattern open the door for a move to the $1,640 region.