Global stocks fall in worst week since the global recession
Global stocks had another difficult day. In Europe, the DAX, CAC, and CAC declined by 3.3%, 2.3%, and 3.10% respectively. In Asia-Pacific, the Shanghai index, ASX, and Nikkei dropped by 3.70%, 3.25%, and 3.67% respectively. In the United States, futures tied to the Dow, Nasdaq, and S&P500 dropped by more than 80 basis points. The reason for this price action is that market participants are worried about coronavirus, which is spreading in other countries in Asia and Europe. In the United States, the CDC has warned the disease will likely start to spread in the country.
The price of crude oil declined today as risks continued. The price of Brent declined by more than 2.5% while that of WTI declined by more than 3.50%. The reason is that the price of oil is mostly determined by demand. A weak global economy leads to weak demand, which is negative for the price of oil. For example, most airlines have paused their trips to China while people in China are staying indoors. This has been worsened by the reluctance of main oil producers. Data released by the EIA on Wednesday showed that US producers are continuing to pump millions of barrels every day. OPEC members too have continued to pump. All this could change next week when OPEC+ members meet again in Vienna.
The Japanese yen rose sharply today against the USD. The yen is often seen as a safe haven currency together with the Swiss franc and gold. This happened as the CBOE volatility index rose to its highest level since 2011. This index is a useful measure of volatility. Earlier on, we received some negative data from the country. The unemployment rate rose from 2.2% to 2.5% in January. The jobs to applications ratio declined to 1.49, which is its lowest level since 2016. In Tokyo, consumer prices rose by 0.5% in February. This was lower than the expected 0.6%.
Market participants will focus on China Logistics, which will release the February PMI data tomorrow. Traders expect the manufacturing PMI to have declined to 46.0 from 50.0 in January. Services PMI is also expected to drop. A better-than-expected number could calm the markets on Monday.
The USD/JPY pair declined to a low of 108.48, which is the lowest level since February 5. The price is below the 14-day and 28-day exponential moving average on the 30-minute chart. It is also above the Ichimoku cloud and below the dots of the Parabolic SAR. The RSI is slightly above the oversold level of 30. The pair may stabilize ahead of the Chinese PMI data that will come out tomorrow.
The XTI/USD pair dropped to a multi-year low of 44.95. It then pared some of these losses to the current 45.82. On the hourly chart, the price is slightly above the 14-day and 28-day EMA while the Average Directional Movement Index is above 45. The signal and histogram of the MACD is significantly below the centreline. While the pair may continue moving lower, there is a likelihood of a reversal if there are improvements during the weekend.
The EUR/USD pair pared back earlier gains. The pair is trading at 1.1000 which is lower than the intraday high of 1.1052. The price is along the 14-day exponential moving average and above the 28-day EMA on the hourly chart. The RSI, which was previously above 70, declined to the current level of 60. After five consecutive days of gains, there is a likelihood of a pullback happening.