How Is Coronavirus Impacting Financial Markets?

Posted by SM-INVEST -
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SARS-Like Virus Confirmed

The main market news this week has been the outbreak of coronavirus in China. The virus, similar to the same strain of infections as SARS, was first confirmed in Wuhan around two weeks ago. Since then, the virus has spread across all 31 provinces in China, and large parts of Asia. It has now made its way to American and mainland Europe.

Death Toll Rising

The latest figures show around 6000 people with confirmed infections with a death toll of around 150. As the virus continues to spread, fears are growing as medics have confirmed that the diseases can now be spread before symptoms make themselves present. This creates a higher level of difficulty for health authorities in terms of screening for the virus.

In China, large swathes of the country are in lockdown with bans on transportation and going outdoors. Many foreigners, including UK and US citizens, are still in the city of Wuhan, where the virus first broke out.

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The US Evacuates Citizens From Wuhan

The US reported that it had evacuated 240 people (mostly diplomats and businessmen) from Wuhan yesterday. The flight will stop in Anchorage, Alaska, for quarantine while passengers undergo medical screening before returning home.

Markets Lower on Coronavirus Outbreak

Global risk markets feel the negative impact of the news and the continued spread of the virus. Equities and commodities prices have been lower over the week. Markets fear that the virus will cause the same economic damage as SARS did in 2003. During that time, many Asian countries saw a sharp economic downturn. Hong Kong went deep into recession, while global fuel demand cratered.

Will Coronavirus Cause Fed To Shift Its View?

Traders will now wait to see if the outbreak of the virus has caused any alteration in the Fed’s view. At the FOMC meeting later today, the Fed is not expected to adjust rates. Traders will be keen to see if the Fed strikes a more dovish tone given the outbreak of the virus. While recent data has been mostly positive, the risks to the already fragile global economy could see the Fed striking a more cautious note.

If the Fed does strike a more cautious tone, this could help further equities to recover. These are currently struggling to close the weekly gap seen at the open on Sunday. The US500 closed its gap yesterday, though selling kicked in at the level. Any dovishness from the Fed tonight could help boost the index back above the standard, putting the focus on further upside.

Technical Takeaway

US500

The US500 stalls at the 50% retracement (3285.55) from the recent highs. However, this is back above the long term bullish trend line. While price holds above the trend line, the focus is on a further push higher with the 3306.83 level, the next key resistance level to watch. To the downside, any break lower should find support into a test of the 3258.18 level, with the bullish trend line coming in just ahead of that.

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