Coronavirus fears continued to spread into financial markets as equities wrapped up a dismal month. The S&P 500 and Dow Jones Industrial Average[1] erased January’s upside progress in their worst week since late July. Sentiment-linked crude oil prices[2] followed the selloff on Wall Street as prices closed at their lowest in over one year on the weekly chart. Anti-fiat gold prices[3] closed at new 2020 highs.
A closely-watched segment of the U.S. yield curve[4] inverted again for the first time since October 2019, raising concerns about a recession once more. The haven-linked US Dollar[5] scored some gains against “pro-risk” currencies such as the Australian Dollar[6] and New Zealand Dollar[7]. It succumbed to selling pressure against the Euro[8] and British Pound[9]. The Fed has more room to cut.
Investors are doubling down on dovish expectations in the United States. Odds of a second 25-bp rate cut at the end of this year from the central bank are fully baked in according to futures markets. Such an outcome can help alleviate pressures in emerging markets and developing Asia. Against a basket of ASEAN currencies, the US Dollar had its best week since May[10].
After an extended holiday, Chinese markets are expected to come online Monday and alleviate the cautiously thinner trading conditions. They do have some catching up to do if markets begin February in a pessimistic mood. The S&P 500 is also at risk if the Shooting Star candlestick on the monthly chart sees follow-through. This is a sign of indecision which can precede a turn lower.
Top-tier event risk for sentiment-linked currencies such as the Australian Dollar, aside from market
