Weekly Market Wrap 17/02/2020-21/02/2020

Marius Paun | London, UK | Senior dealer | Friday, 21st February 2020

The US private companies’ data was released on Friday, showing a decline in business activity, driven mainly by service sector performance. In particular, the Services PMI came in at 49.4 (contraction) versus expectations of 53.4, the first fall in output for 4 years.

Meanwhile, the Federal Open Market Committee meeting minutes showed members expecting ‘the economic growth to continue at a moderate pace’. At the same time risks to economic activity were seen ‘somewhat more favourable’ than at recent previous meetings.

Commerce in China will be negatively affected by the coronavirus contagion says rating agency, Moodys, which revised downwards the GDP growth forecasts to 5.2% this year. To make matters worse, the US giant tech company Apple warned that it does not expect to meet revenue guidance this quarter.

Authorities are trying to keep calm, with Premier Li Keqiang saying the epidemic has started to show a slightly improving trend. The official reports added the number of cases/ casualties are now dropping. The World Health Organization was a bit more sceptical in considering those signs at the beginning of the end.

Back in the UK, Bank of England’s decision to keep interest rates unchanged was somewhat vindicated by the inflation figures released on Wednesday. January CPI readings came in at 1.8% compared with anticipations for a rise of 1.6%.

Although inflation is still under the 2% target level, the central bank should feel encouraged to remain on the side-lines, operating in their current monitoring mode. The pound sterling dropped below 1.30 against the US dollar but seems to be rebounding going into the weekend.

Germany’s ZEW Economic Sentiment came in at 8.7 in February, against the consensus for 21.5, on fears that export intensive sectors of the economy will decline rather sharply. As a consequence, the euro plunged below 1.08 against the US dollar to a 34-month low of 1.0774.

For the first time since January 8th, gold prices moved above the $1,600 mark on the same widespread concerns regarding the coronavirus outbreak. The rally continued throughout the week on the same risk-on sentiment and the precious metal quickly moved within touching distance of $1,650 by Friday afternoon. It seems the disappointing US PMI data could make bulls even more confident that this is their moment to shine.