Asian assets mixed as Covid-19 situation remains fluid
US retail sales may push Dollar higher Asian stocks and currencies were mixed on Friday, as market participants still grapple with the true extent of the Covid-19 outbreak. The death toll in China was revised upwards to 1,380 on Thursday. Risk sentiment has fluctuated this week, proving yet again that the situation remains fluid with no clear and sustained sign that the outbreak is stabilising.
Uncertainties continue to abound, especially around whether the global economy can withstand the negative economic impact of the virus. Until investors are offered a meaningful dose of certainty, markets should see a broadly supportive environment for safe haven assets such as Gold and the Japanese Yen, while emergingmarket assets are expected to remain handicapped by the downside risks stemming from Covid-19.
The lowering of trade tariffs between the US and China, as part of the phase-one trade deal, is being overshadowed by the economic risks posed by Covid-19. While lowering barriers to trade may go some way in alleviating the pressures on the global economy, the ensuing tailwind is expected to be offset over the near-term by the drop in demand due to the outbreak of the virus.
Amid the travel bans, manufacturing disruptions and the pullback in discretionary spending, policymakers may be forced into rolling out more stimulus measures to support their respective economies. The theme of global trade tensions will likely only return to the forefront of the market’s collective consciousness once Covid-19 is officially under control.
The Dollar index (DXY) has climbed past the 99 level and is trading at its highest since October. Friday’s January US retail sales data is expected to show a 0.3% advance, but any positive surprise will give dollar bulls a further reason to push DXY higher.
However, with the Dollar index now tipping into overbought territory, the upward momentum may peter out in the near-term. Still, from a fundamental perspective, the Dollar should be able to retain most of its recent gains, considering the market uncertainties over Covid-19’s economic toll, as well as the US economy’s resilience relative to its G10 peers. dramatic turn for the worse, perhaps by way of confirmation in the economic data, $1600 remains in reach from current levels considering that Gold prices have yet to reach overbought levels.
Nevertheless, with the copper-gold ratio approaching a key long-term support level, market participants may be on the cusp of flocking back towards risk-taking activities, at Gold’s expense. Such a pivot point is likely contingent on surer signs that the outbreak is stabilising, with Bullion supported above the $1545 mark in the interim.