Week Ahead- Coronavirus Contagion in Focus

Weekly recap, this week’s economic report and a focus on gold from Joe Perry.

What a wild week!  After terrible GDP data out of Japan on Monday, Japanese yen pairs were all the rage on Tuesday and Wednesday as pairs such as EUR/JPY traded up over 2% and USD/JPY traded up over 1.6%. After speculation the move was a post poor GDP move or because of Coronavirus fears in Japan, it seems as though Japan’s Government Pension Investment Fund (GPIF) was the main seller of yen, reallocated funds to buy foreign bonds. Thursday and Friday were a wake-up call for equity markets as more cases of the Coronavirus had been discovered outside of China, particularly in Iran, Lebanon, and South Korea.

This led to concerns of further manufacturing disruption. Oddly enough, earlier in the week, lowered guidance from Apple (AAPL) and Walmart (WMT) couldn’t even spook the market. The S&P 500 is down nearly 1.5% on the week. Gold was leading the risk off move all week, trading higher all four days this week (Monday was a US holiday), and was up almost 4% on the week.

This Week

With a light economic calendar most of this week (see economic highlights for the week below), the focus is going to unfortunately be on the Coronavirus. After cases were reported in Iran and Lebanon, the World Health Organization’s (WHO) Tedros Adhanom Ghebreyesus said the virus can still be contained however “the window of opportunity is narrowing, so we need to act quickly before it closes.”

The virus will be closely monitored this weekend and throughout next week. If it continues to spread, stocks could continue to weaken, especially if more cases are identified in the Europe and the United States. Other large companies that rely on manufacturing from China are also likely to warn on Q1 earnings. Ironically, as stocks sold off toward the end of the week, yen pairs were only down slightly and still closed up a large amount for the week. This indicates that there are still sellers of yen in the market. (Yen pairs are highly correlated with risk. As stocks sold off, yen pairs should have sold off as well). Watch for more yen selling this week.

Earnings season is just about over, however take note of Baidu Inc. (BIDU) and JD.com Inc. (JD) this week as these two Chinese companies may provide lower guidance and discuss their outlook on the Coronavirus. 

Chart to Watch: Daily Gold

Source: Tradingview, FOREX.com

What a massive 4% move on the week for gold. Can it continue? Technically, price broke out of a flag pattern in December and paused at the 127.2% Fibonacci extension level from the Sept. 3 high to the Nov. 12 low near $1,588. Price then formed a symmetrical triangle at that level, only to bust higher this week and continue its path toward the larger flag target near $1,720. Price may pause as the Relative Strength Index (RSI) is overbought and diverging, however if stocks continue to sell off next week, funds may continue to flow into gold and push price higher. 

Economic highlights for the Week:

Monday

• New Zealand: Retail Sales Q4
• Germany: IFO Business Climate Feb

Tuesday

• Germany: GDP Q4 Final
• US: Consumer Confidence Feb

Wednesday

• Crude Oil Inventories

Thursday

• New Zealand: Trade Balance Jan
• New Zealand: ANZ Business Confidence Jan
• EU: Business Confidence
• EU: Consumer Confidence
• US: GDP 2nd estimate Q4
• US Durable Goods Orders Jan

Friday

• Japan: Unemployment Rate Jan
• Japan: Industrial Production Jan
• Japan: Retail Sales Jan
• Germany: Unemployment Change Feb
• Germany: Inflation Rate
• Canada: GDP Q4
• Canada: PPI Jan
• US PCE Price Index Jan
• Core PCE Price Index Jan

Saturday

• China: NBS Manufacturing PMI Feb
• China: Non-Manufacturing PMI Feb