What has been the reaction of the markets to the coronavirus? Why are negotiating in fall, what are the expectations?
The dominant feeling is negative, or risk-off. Investors have lost interest in risky assets like stocks or the Euro, causing the fall of their value, turning to the traditional assets of refuge, such as gold, Treasuries American or currencies as the Yen. But not only the feeling of investors who resents; the Chinese economy will feel the impact of quarantine imposed on some of the major urban centres, which already affects the economic growth prospects in the short / medium term and may, depending on the duration of restrictions also impact the global economy.
Ricardo Evangelista, ActivTrades
On the other hand it remains difficult to predict the behaviour of the virus globally; its features, which include an incubation period of up to 14 days during which the carrier is contagious, can potentially generate a global pandemic, which would cause a similar impact in other countries. In such a scenario the race to take refuge asset step would be, with the losses related to risky assets.
And what about the oil? What are the expectations?
The price of oil has fallen, registering a loss of more than 9% for crude barrel over the last seven days. At this time the position is risk-off, as investors predict that the restrictions on the movement and use of transport in China cause already a drop in demand, which could accentuate in the case of an increase in the spread of the virus and maintenance, or even expansion, of the restrictions. Everything will depend on the developments; a degree of uncertainty persists regarding the rate of spread and mortality associated with coronavirus Wuhan. If concerns remain, or grow, the impact on the price of a barrel of oil will be negative certainty.
Against the EUR/USD? What are the prospects?
The losses of the Euro against the Dollar has been proportional to the increase in concern about the coronavirus, reaching almost 1% over the last seven days. The US currency is seen as a haven currencies such as the Yen and the Swiss franc, so it is not surprising that in the face of a loss of appetite for risk, investors prefer the Dollar and sell the single currency, leading to the devaluation of the latter. The performance of this currency pair soon will certainly depend on the narrative that dominate the markets; if the current concern about the virus remains, fuelling risk aversion, we should expect an increasing Dollar’s dominance.
