S&P 500 Price Forecast – Stock Market Continues To Find Buyers On Dips

The S&P 500 has pulled back a bit against the trading session on Tuesday, reaching towards the 3300 level. That is a large, round, psychologically significant number, and it has in fact attracted value hunters into this market. I believe that the market also has plenty of support underneath, extending all the way down to at least the 3200 level where the 50 day EMA currently resides. I look at these pullbacks as a significant value proposition, and at this point it’s likely that the market will continue to find plenty of buyers every time it pulls back.

S&P 500 Video 22.01.20

I believe that it’s only a matter of time before we go looking towards the 3500 level, and that is my target for the longer term. Overall, there is the argument that we are a bit stretched, and if we get a sudden flush lower, you don’t need to be hero and step in right away. Take advantage of some type of supportive candlestick when it appears on a daily candlestick. All things being equal I do like this market and I do think that we go higher over the longer term, mainly because the Federal Reserve is more than likely to loosen monetary policy and more importantly add to their balance sheet in order to lift the stock markets in general. As long as that’s the case, there is no real way to short this market and we will more than likely find value hunters every time it dips. Earnings season so far has been fairly good as well, so that of course doesn’t hurt either.

Please let us know what you think in the comments below

Silver Price Forecast – Silver Markets Pulled Back Drastically

Silver markets fell initially during the trading session on Tuesday, drifting down towards the $17.60 level. The reason that level is important, is because the 50 day EMA currently sits at it. This pullback has been rather brutal, but at the end of the day it is still well within the tolerance of the recent trading range and we have in fact already seen a recovery of significant magnitude as well. Precious metals have been in an uptrend for some time, and it’s likely that they will continue to be even if we do fall from here.

SILVER Video 22.01.20

Precious metals are getting a bit of a boost due to the loose monetary policy around the world and of course risk avoidance at times. That being said, it’s very likely that this market will find buyers due to the fact that the 50 day EMA is right here and of course the fact that there are so many different potential political issues. Furthermore, the US dollar has lost a little bit of its luster so although it has been a bit more “risk on” during the Tuesday session, the markets have been very rocky and choppy to say the least, so precious metals should continue to find a bit of a bit on these dips. That being said, if we break down below the 50 day EMA then I think the market probably resets closer to the $17.00 level. Otherwise, I would fully anticipate that this market will recapture the $18.00 level rather quickly. Expect a lot of choppiness, and perhaps keep your position size relatively small in the short term.

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Crude Oil Price Forecast – Crude Oil Markets Volatile To Kickoff Week

WTI Crude Oil

The West Texas Intermediate Crude Oil market has initially tried to rally during the trading session on Tuesday but found the area just below the $60 level to be too much. We then broke down towards the 200 day EMA, and then bounced right back above it. This is an extraordinarily volatile candlestick, and it shows that the market is trying to figure out where to go next. I would hesitate to put money to work in this market until we can break above $60, or below $57.50 on a daily close. At that point, it’s very likely that it shows where the next $2.50 will be coming from, either the upper or downside.

Oil Forecast Video 22.01.20

Brent

Brent markets also had a very wild ride during the trading session and tested the 200 day EMA. They did not break through it, and then they turned around to form a bit of a hammer. If we can break above the top of the range for the Tuesday session, then it’s likely that we go looking towards the $67.50 level. Otherwise, if we break down below the 200 day EMA it’s very likely that the $62.50 level will be targeted initially, followed by the $60 level given enough time. Now that we have more volume in the market is likely that traders will make more of a longer-term decision, and it’s clear that there is a huge fight going on in the oil pits right now. Get out of the way, and simply react to whoever wins this argument, right now is not the time to be risking a lot of money in this market.

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Natural Gas Price Forecast – Natural Gas Markets Continue To Struggle

Natural gas markets have been relatively quiet during the trading session on Tuesday, as traders have come back from the Martin Luther King Jr. holiday. That being said, we are at extremely low levels, so it is probably not a huge surprise to see that the market is taking a bit of a breather after selling off the way it has. This has been absolutely brutal move, and it would not be a surprise at all to see the market bounce from here.

NATGAS Video 22.01.20

While I am not a huge trader of Bollinger Bands, I recognize that they can be very useful when trying to identify an overbought or oversold condition. The Natural Gas markets are a perfect example of that right now, and it does look like a bounce is likely due to the fact that we are overextended. According to this indicator, we could go as high as $2.10, which I would be more than willing to short at the first signs of exhaustion. Inventory numbers will be paid close attention to this week, but quite frankly I think at this point it’s almost impossible to imagine a scenario where we go through enough supply to change the overall trajectory of the market for more than a couple of days. Going forward, the specter of massive bankruptcies hangs over this marketplace, as several countries are starting to be scrutinized by creditors and ratings agencies. Eventually, the market will correct itself but it is far too oversupplied at the moment.

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Gold Price Forecast – Gold Markets Choppy On Tuesday

Gold markets went back and forth during the trading session on Tuesday, as Americans came back from the Martin Luther King Jr. holiday. With this, it looks as if the $1550 level is going to continue to offer a bit of support, and I do think that this market probably grind back and forth in order to “kill time” in order to try to build up enough momentum to finally go higher. Looking at this chart, even if we were to break down below the $1550 level, there is very likely going to be a significant amount of support at the $1525 level, the 50 day EMA at the $1514 level, and then of course the psychologically important $1500 level.

Gold Price Predictions Video 22.01.20

When you look at the chart, it’s obvious that we have been in an uptrend recently in the fact that we would pull back a little bit and simply grind sideways would not be a huge surprise. Because of this, I like the idea of buying dips, but I would only do so and little bits and pieces, building up a core position. Eventually, I believe that the market will go looking towards the $1600 level, perhaps as the US dollar gets hammered, or on some type of political headline, both of which are probably just as likely to happen in the environment that we have been in. Furthermore, central banks around the world continue to loosen monetary policy so that prevents gold from falling too far to begin with. I’m bullish, but I’m not willing to jump in with both feet in one shot.

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Crude Oil Under Pressure, Tests $58 Level

U.S. crude has posted small losses in the Tuesday session. Currently, crude is trading at $58.59, down $0.11 or 0.20% on the day. Brent crude is trading at $65.00, down $0.14 or 0.21%.

Will IMF Forecast Affect Oil Prices?

The International Monetary Fund (IMF) released its most recent global growth forecast on Monday. The IMF tweaked its 2020 forecast downwards, from 3.4% to 3.3%, citing slower growth in India and other emerging economies. Still, the 2020 forecast remains significantly stronger than 2019, which came in at 2.9 percent. The revised growth projection was presented at the World Economic Forum in Davos, Switzerland. IMF managing director Kristalina Georgieva sounded positive about the forecast, noting that “after a synchronized slowdown in 2019, we expect a moderate pickup in global growth this year and next.” Despite the IMF putting a brave face on global growth, investors remain concerned about global economic conditions, as a continuing global recession could weigh heavily on crude prices.

Iran On Agenda at World Economic Forum

With a light calendar for fundamentals this week, investors will have plenty of time to follow the World Economic Forum (WEF). The summit hosts global political and business leaders and U.S. President Trump is in attendance. With leaders expected to discuss pressing global issues such as the crisis with Iran, investors keeping an eye on oil prices will be monitoring developments at the WEF. The recent flare-up between Iran and the United States saw crude prices spike upwards, only to quickly give up these gains.

Technical Analysis

The line of 58.75 remains fluid and is currently an immediate resistance line. Close by, the 50-EMA line is touching the candlesticks at 58.95. Above there is resistance at the round number of 60.00. On the downside, there is support at 58.00. This is followed by support at 57.25.

WTI/USD 1-Day Chart

USD/JPY Price Forecast – US Dollar Finds Buyers On Dips Against Japanese Yen

The US dollar has rallied after initially pulling back below the ¥110 level. The market looks very likely to continue going higher but we are a bit overall stretched at the moment, so don’t be surprised at all to see this market continued to pullback occasionally, but overall it’s very likely that the market will find plenty of momentum eventually to go to the upside. If and when it does, the market is likely to go looking towards the gap at the ¥111 level, an area that will offer a significant amount of resistance. However, I do believe that we break above there and then go looking towards the ¥112.33 level, which is the 100% Fibonacci retracement level as shown on the chart.

USD/JPY Video 22.01.20

To the downside, even if we do break down below the ¥110 level again, it’s very likely that the ¥109.60 level will offer support, and then the 50 day EMA which is turning higher and racing towards current pricing. It is near the ¥109.11 level, but it’s trajectory is most certainly very bullish. Because of this, I think that it’s only a matter of time before we find enough value hunting underneath the turn this thing around on a pullback. If we do break above the shooting star from the Friday session however, then we will have another impulsive move to the upside. I believe that this market is probably best traded on short-term charts, offering a “buy on the dips” type of short-term trading strategy environment that you can take advantage of over the next several weeks.

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GBP/USD Price Forecast – British Pound Rallies After Strong Jobs Numbers

The British pound has rallied significantly during the trading session on Tuesday, breaking above the top of the hammer from the Monday session, and of course the 50 day EMA. Both of these are a very bullish sign, as employment figures came out much better than anticipated. That being said, we have still not recaptured the highs from the Friday session, and if we did that could be a very bullish sign. All things being equal, this is a market that could then go looking towards the 1.35 handle given enough time. That would not be an easy move, but I do believe it would be a move that would eventually happen.

GBP/USD  Video 22.01.20

The alternate scenario of course is that we were to break down below the hammer from the Monday session, which would of course be relatively negative. If that’s going to be the case, then it’s possible that we could go to the 1.29 level, and then possibly even the 1.27 level area as it features the 200 day EMA. All things being equal though, I do believe that the buyers will eventually try to push this market higher unless of course the Bank of England starts cutting rates, something that is a real threat. That is perhaps why we are seen so much in the way of choppy and erratic behavior in this currency pair. Ultimately, this is a market that is still in an uptrend, albeit barely hanging on to it. I like the idea of buying dips in general, but recognize that there might be easier trade out there to be had.

Please let us know what you think in the comments below

GBP/JPY Price Forecast – British Pound Recovers Nicely Against Japanese Yen

The British pound initially pulled back a bit during the trading session on Tuesday, reaching towards the bottom of the Monday session before bouncing. The British employment figures came out much better than anticipated and then of course is good for the British pound. There are a lot of speculators out there that are trying to figure out whether or not the Bank of England is going to cut interest rates at the end of the month. All things being equal, this is a market that is in an uptrend anyway, and that is probably the most important thing to pay attention to here.

GBP/JPY  Video 22.01.20

If the market can overtake the Friday highs, that would be a very bullish sign and should send the British pound looking towards the highs again, perhaps reaching towards the ¥148 level. This market has been bullish for some time, and it looks as if it is trying to build up a little bit of a base to continue the move higher. The 50 day EMA sits just below and is rising up in, so that of course is a good sign as well. In general, I am a buyer of dips in this market, but recognize that there is a lot of noise out there just waiting to be had, so you should of course be cautious about your leverage and position size. All things being equal, I do believe that we will reach those highs again, and I believe that the 50 day EMA will continue to offer support. If it does not, then the ¥140 level underneath will be the next “floor” in the market.

Please let us know what you think in the comments below

EUR/USD Price Forecast – Euro Rallies After Strong German ZEW

The German ZEW Economic Sentiment indicator came out much stronger than anticipated, and this of course has sent the Euro higher as Germany is such a huge part of the European Union. Furthermore, we had already seen a bit of support from the previous session, as Monday closed with a hammer. The market looks very likely to continue to see more of a reach towards the 200 day EMA above, perhaps reaching towards the 1.1150 level even. However, we are in the midst of conflicting pressures, and then of course the moving averages will attract a certain amount of attention. The 50 day and the 200 day EMA moving averages are some of the most widely followed economic indicators.

EUR/USD Forecast Video 22.01.20

I anticipate that this pair will continue to chop back and forth in general, as it has no real clarity at the moment. That being said though, we are in a larger consolidation area between the 1.10 level on the bottom and the 1.12 level on the top. Until we break out of this 200 point range, I think that we simply go back and forth. We are hanging about the middle of it which is essentially “fair value”, considering that it’s a bit of an equilibrium for the markets. Until we get some type of significant move one way or the other, this will continue to be a short-term trading opportunity, as we go back and forth. Clarity is not something we have much of right now other than the fact that 1.11 seems to be a bit of a magnet. The closer we get to the outside of the consolidation area, the more likely I am to try to fade that move and reach back towards 1.11 handle.

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AUD/USD Price Forecast – Australian Dollar Continues To Find Support

The Australian dollar continues to bounce around between the 50 day EMA and the 200 day EMA, both of which will attract a lot of attention for longer-term traders. That being said, I am impressed by the fact that we continue to see buyers jump into this market and try to lift it. That being said, if we can break above the 200 day EMA it’s likely that we could go to the upside. That being said, I do believe that we are still trying to confirm some type of trend change, and if we can clear above the 0.6930 level, then it will almost certainly send this market looking towards the highs again, that we had seen just a few weeks ago.

AUD/USD Video 22.01.20

Looking at this chart, you can see that there is a lot of confusion but by breaking above the downtrend line, it looks as if we are trying to form some type of trend change. That is always a very noisy scenario and messy trading to say the least. If that’s the case, then what we have seen over the last couple of weeks isn’t necessarily out of the range of normalcy. Think about it for a moment: we have the Australian dollar which is highly sensitive to the US/China trade situation, which has recently shown stability. Having said that, on the other side we have the wildfires in Australia stoking the idea that perhaps the RBA will have to cut interest rates. If they do not, it’s very likely that this pair will finally decide to make its move to the upside for a longer-term move.

Please let us know what you think in the comments below

Natural Gas Prices are Poised to Test 2016 Lows

Natural gas prices whipsawed on Tuesday, as prices tested 3-year lows. Sentiment clearly remains negative, and the forecast of warmer than normal weather during the next 2-weeks emboldens trader’s who are bearish. Traders are pricing in a substantial increase in natural gas stockpiles relative to the last 5-years.

The short-term picture for natural gas prices remains negative despite Tuesday’s whipsaw price action.

The rebound in prices from $1.83 was very impressive and was likely a hedge fund taking profits after a robust gain. The weekly chart of NYMEX natural gas shows that prices rebounded ahead of the 2016 lows at 1.61.

This could be a target price and could potentially be breached if inventory growth pushes through the 5-year average high. The trajectory of inventory levels points to a break of the 5-year high, which might be a reason for prices taking out the 5-year low in price at $1.61.

The technical outlook remains negative, but, on a short-term basis, prices are oversold. The fast stochastic has generated a crossover buy signal in overbought territory. The RSI is printing a reading of 36, which is above the oversold trigger level.

Weekly momentum is negative as the MACD (moving average convergence divergence) index recently generated a crossover sell signal. Prices broke down through trend line support and the capitulation by some natural gas bulls was offset by those who were taking profits.

Managed Money Remains Short

The rebound from the weekly lows at 1.83, was likely a hedge fund buying back a short position. With the robust levels of hedge fund shorts, you need to be careful that a short-squeeze does not turn into a market route. As prices move toward the 2016 lows, there will likely be several fits and starts as managed money looks to cash in.

 

Hedge funds added to their short position in futures and options according to the latest commitment of the trader’s report released for the date ending 1/14/2020. According to the CFTC, managed money increased their short position in futures and options by 28K contracts while also increasing their long positions by 8.7K contracts.

The open interest that is short futures and options is 2.73 larger than the open interest that is long in the managed money space. You can see why hedge funds need to be nimble when exiting their short positions. One forecast of an extended cold weather period could generate a short squeeze.

The choppy nature of price action as we approach the $1.61 will make trading difficult. Selling into a rally might be a prudent approach. Catching the diving knife, if you believe prices will move higher, is a risky trade.  Wait for a cold-weather forecast before you bet on higher prices.

Natural Gas Price Fundamental Daily Forecast – Oversold Technical Signs May Offset Bearish Fundamentals

Natural gas futures are trading lower after gapping on the opening. The bearish price action is in reaction to forecasts from over the week-end calling for milder temperatures into the end of the month. Traders are also shrugging off last week’s potentially bullish government storage report that showed a larger than expected draw down.

At 14:03 GMT, March natural gas is trading $1.932, down $0.053 or -2.67%.

According to NatGasWeather, “The weather data trended much warmer over the weekend and continued to trend further warmer overnight. After today’s cold shot across the northern and eastern U.S. exits, mild conditions will return across most of the US by late in the week as high pressure strengthens. Where weather patterns look more bearish than late last week is for the start of February as mild conditions are favored to continue.

The next best chances of more frigid air into the U.S. would be around February 4th. Clearly, the nat gas markets were disappointed by milder trends to push prices under $2.00. But it has helped the balance tightened the past several days with LNG exports hitting new all-time highs and power burns strong and over 30 Bcf on cold early week temperatures.”

Short-Term Weather Outlook

For January 21 to January 27, NatGasWeather says, “A strong cold shot will impact the Midwest & East today with highs of only 0s to 30s for strong national demand, aided by lows of 20s &30s across much of the U.S. Wednesday through Friday as high pressure strengthens.

After today, highs across the southern U.S. will warm into the 50s to 70s, with 30s to 50s across the Great Lakes and Northeast, 10-25 degrees F warmer than normal. It will remain cold across the Northern Plains late in the week for the nation’s only cold spot. The West will see a mix of weather systems with cooling & milder breaks. Overall, strong national demand today, then light thereafter.

Daily Forecast

The weather is bearish; however, oversold conditions could lead to a surprise short-covering rally. Be prepared for a possible two-sided trade.

Markets Pull Back From Highs, Davos Begins, Sickness In China Hurts Sentiment

The U.S. Futures Are Down In Early Trading

The U.S. futures are down in early trading as risk-on sentiment reverses. Topping today’s news are reports out of China a new virus could dampen Lunar New Year celebrations. The flu-like coronavirus can cause pneumonia in humans and has already killed six. Chinese officials are worried the illness will spread over the holiday because 100s of millions of people are expected to travel. The Dow Jones Industrial Average is down -0.20%, the S&P and NASDAQ Composite are both down more than -0.30%.

In other news, the Senate has laid out the rules for the impeachment trial of Donald Trump. McConnel will allow voting on documents and witnesses, putting a damper on hopes for conviction. In trade news, Steve Mnuchin says the Phase 2 Trade Deal may not remove all the tariffs that are in place. This news is another blow to those hoping trade would return to normal soon. At this pace, it will be at least three phases of negotiations and many years before all issues are resolved.

There is no economic data today but traders are on alert for central bank news. The FOMC is meeting next week as is the BOE. The BOJ issued their statement today, no change to policy and positive growth outlook through 2021, while the ECB is slated to issue theirs later this week. On the earnings front, the 4th quarter earnings cycle kicks into high gear this week.

European Markets Fall, Travel Stocks Lead

European stocks are falling at midday on Tuesday after the news of China’s health-problem emerged. The FTSE is in the lead with a loss of -0.90% while the CAC and DAX trail. The CAC is close behind with a loss of -0.80% while the DAX is posting a more tepid -0.15% loss. While the Chinese health scare is worrying traders, the big news today is from Davos. The annual economic forum begins today and was kicked off by speeches from Donald Trump and Greta Thunberg. The one advocated for protectionist national policies, the other for quicker action regarding climate change.

In stock news, shares of UBS are down -5.0% after the banking giant missed top and bottom-line expectations. Shares of steelmaker Euraz are also down -5.0% after disappointing investors. At the other end of the spectrum, shares of Hugo Boss are moving higher. The German fashion brand reported better than expected results and gave a favorable outlook.

Asia Plummets, Hong Kong Leads, As Illness Spreads In China

Asian markets are broadly lower at the end of the trading session on Tuesday. The Hong Kong Hang Seng is in the lead with a loss of -2.8% on word of a major downgrade. Moody’s cut the city-state’s rating to Aa2 from Aa3 citing instability within the government. Shares in Shanghai are down -1.41% due to the spreading illness within Chinese borders. More than 300 cases have been reported along with 6 deaths raising concerns of a wider epidemic. With Lunar New Year celebrations beginning soon the cause for concern is real. The Nikkei shed -0.90%, the ASX -0.19%, and Kospi -1.01%.

Oil Price Fundamental Daily Forecast – Plenty of Supply, Lower Demand Forecasts Weigh on Prices

U.S. West Texas Intermediate and international-benchmark crude oil futures are trading sharply lower on Tuesday, shortly after the regular session opening. Prices are being pressured by expectations that a well-supplied market would be able to absorb disruptions that have cut Libya’s crude production to a trickle.

A drop in demand for risky assets may have also been behind the selling pressure. Stocks sold-off and demand for safe-haven assets jumped earlier in the session on fears of contagion of the Coronavirus in China.

Additionally, a bearish economic outlook from the International Monetary Fund (IMF) may have also encouraged investors to sell crude oil on the fear of slower global demand growth.

At 13:19 GMT, March WTI crude oil is trading $57.88, down $0.70 or -1.18% and March Brent crude oil is at $64.26, down $0.59 or -0.89%.

Libya’s Crude Export Capacity Under Force Majeure

If Libyan exports are halted for any sustained period, storage tanks will fill within days and production will slow to 72,000 barrels per day (bpd), said a spokesman for state oil company NOC. Libya has been producing about 1.2 million bpd recently.

Any supply disruptions could be offset by increased output from OPEC, which could limit the impact on global oil markets, the head of Japan’s petroleum industry body said.

Furthermore, ING said that spare OPEC capacity, which stands in excess of 3 million bpd, was reassuring the market.

IMF Forecasts Slower Growth

The IMF on Monday trimmed back its 2020 global economic growth forecasts by a tenth of a percentage point to 3.3% because of sharper than expected slowdowns in India and other emerging markets. But the IMF said that a U.S.-China trade deal was another sign that trade and manufacturing activity could soon bottom out.

Daily Forecast

Today’s price action suggests what we’ve been saying for about two weeks – crude oil prices are likely to remain rangebound as sellers, betting on slower demand growth, keep a lid on rallies, and buyers hoping for higher demand because of the U.S.-China trade deal, bet on a global economic recovery.

Furthermore, the absence of any major conflicts in the Middle East will also make it difficult to sustain a rally.

Price of Gold Fundamental Daily Forecast – Prices Tumble Amid Mixed Reaction to Coronavirus Scare

Gold futures are trading lower shortly before the regular session opening after giving back earlier gains that took the market to its highest level since January 8. Gold rallied earlier in the session as demand for risky assets plunged amid fears of contagion of the coronavirus in China. The market retreated from its high after safe-haven Treasurys and Japanese Yen gave back their gains and U.S. equity markets bounced off their lows.

At 12:44 GMT, February Comex gold is trading $1556.50, down $3.80 or -0.24%. The high of the session is $1568.80.

Coronavirus Outbreak Concerns

Risky assets fell and safe-haven assets rose earlier in the session after a coronavirus outbreak that began in the central Chinese city of Wuhan raised fears of contagion. Investors were also rattled by the news that the World Health Organization (WHO) called a meeting for Wednesday to consider declaring an international health emergency.

The contagion fear was fueled by worries the virus would spread during the Chinese Lunar New Year celebration, which begins this weekend.

“Chinese New Year holidays are going to worsen the situation as people are bound to travel in China. The fear of outbreak is going to drive up demand for gold for a couple more days,” said Margaret Yang Yan, a market analyst at CMC Markets.

Price Action Suggests Trader Overreaction

The bullish view is not shared by everyone, however.

“The virus is like a double-edged sword,” said Quantitative Commodity Research consultant Peter Fertig.

“In one way it is boosting gold, but in the longer term, if the virus kills thousands that will impact gold negatively on the physical side,” Fertig said, adding a stronger dollar is weighing on gold prices at the moment.

Additionally, Jeffrey Halley, senior market analyst at OANDA, aid in a note, “However, it is hard to see gold progressing above $1,600 an ounce until the health emergency escalates sharply and becomes a regional problem.”

IMF Forecasts Supportive for Gold

Global economic growth for this year has been revised downwards from 3.4% to 3.3%, according to the International Monetary Fund (IMF). The IMF has become less optimistic about global growth, warning that the outlook remains sluggish and there are no clear signs of a turning point.

The “sluggish” forecast likely means that central banks will keep interest rates at or near historically low levels. Furthermore, it opens the door to more creative central bank stimulus like Quantitative Easing (QE) and fresh fiscal stimulus. This could provide support for gold throughout the year.

IMF Cuts Growth Forecasts Amid ‘Sluggish’ Global Economy

The International Monetary Fund (IMF) said Monday that the global economic outlook “remains sluggish” as it trimmed its growth forecasts for 2019 and 2020 to 2.9% and 3.3% respectively.

“The projected recovery for global growth remains uncertain. It continues to rely on recoveries in stressed and underperforming emerging market economies, as growth in advanced economies stabilizes at close to current levels,” IMF Chief Economist Gita Gopinath said in a written statement.

Nonetheless, the Fund noted that some of the biggest economic uncertainties, highlighted in October, have dissipated. “Some risks have partially receded with the announcement of a U.S.-China Phase I trade deal and lower likelihood of a no-deal Brexit,” Gopinath said.

In addition, the IMF has said that central banks are expected to keep supporting their respective economies. “Monetary policy has continued to support growth and buoyant financial conditions. With these developments, there are now tentative signs that global growth may be stabilizing, though at subdued levels,” Gopinath also said in the report.

However, the IMF is cautious about the state of the global economy going forward, in particular about further trade tensions. “New trade tensions could emerge between the United States and the European Union, and U.S.-China trade tensions could return,” Gopinath said.

According to Gopinath, further trade tensions “alongside rising geopolitical risks and intensifying social unrest could reverse easy financing conditions, expose financial vulnerabilities, and severely disrupt growth.”

“While there are signs of stabilization, the global outlook remains sluggish and there are no clear signs of a turning point. There is simply no room for complacency, and the world needs stronger multilateral cooperation and national-level policies to support a sustained recovery that benefits all,” she concluded.

IMF Attributes ‘The Lion’s Share’ of Downward Revision to ‘More Subdued Growth Forecast’ for India

India, Asia’s third-largest economy, is expected to grow by 5.8% in 2020, a 1.2 percentage point markdown from the organization’s October forecast.

China Growth Upgraded

China’s growth forecast for 2020 was revised higher by 0.2 percentage points to 6.0%, according to the IMF. That’s partly because the country’s “phase one” trade deal with the U.S. is likely to reduce some risks facing the world’s second-largest economy, the fund said.

IMF Predicts Modest US Growth

The U.S., the world’s largest economy, is projected to grow by 2.0% this year, a downward revision of 0.1 percentage points compared to the IMF’s October forecast.

IMF Sees Euro Zone Pick Up

Growth in the Euro Zone for this year was revised down by 0.1 percentage points to 1.3%, according to the IMF. However, that projection reflects a pick up from last year’s 1.2% estimate, which the organization attributed to an expected improvement in external demand.

These are the IMF’s growth forecasts for major European economies this year”

  • Germany: 1.1%
  • France: 1.3%
  • Italy: 0.5%
  • Spain: 1.6%.

Escalating Coronavirus Outbreak Pressures Asian Indexes; Hong Kong Tumbles on Moody’s Downgrade

The major Asia Pacific stock indexes finished sharply lower on Tuesday as investors were rattled by an escalating coronavirus outbreak in China. The outbreak of a new coronavirus has spread to more Chinese cities, including Shanghai and the capital Beijing, authorities said on Monday.

“Concerns over the spread of the virus is affecting market sentiments. Unfortunately, it’s coming at a bad time because it’s travel season in China ahead of the New Year celebrations,” said Linus Loo, head of research at Lim & Tan Securities.

On Tuesday, Japan’s Nikkei 225 Index settled at 23864.56, down 218.95 or -0.91%. Hong Kong’s Hang Seng Index finished at 27985.33, down 810.58 or -2.81% and South Korea’s KOSPI Index closed at 2239.69, down 22.95 or -1.01%.

China’s Shanghai Index settled at 3052.14, down 43.65 or -1.41% and Australia’s S&P/ASX 200 Index finished at 7066.30, down 13.20 or -0.19%.

Shanghai Index Hits Two-Week Low

Losses in the banking and industrial sectors weighed on the city-state’s benchmark as it fell to its lowest in nearly two weeks. Lender DBS Group Holdings lost nearly 1%, while conglomerate Jardine Strategic Holdings was down over 2%.

Moody Cuts Hong Kong’s Rating

Stocks in Hong Kong led losses regionally among major Asian markets on Tuesday after ratings agency Moody’s cut its rating for the city to Aa3 from Aa2 on Monday. In making the move, Moody’s said its view on the strength in the Chinese-ruled city’s institutions and governance is “lower than previously estimated.”

In a statement on Tuesday, Hong Kong’s government said it strongly disagreed with Moody’s assessment and was “deeply disappointed” by the decision.

The agency, however, moved its outlook to stable from negative, saying this reflects Hong Kong’s superior fiscal strength and consistent macroeconomic stability.

“The absence of tangible plans to address either the political or economic and social concerns of the Hong Kong population that have come to the fore in the past nine months may reflect weaker inherent institutional capacity than Moody’s had previously assessed,” the agency said in a statement.

BOJ Holds Short-Term Rates Steady

The Bank of Japan (BoJ) kept its short-term policy rate unchanged at -0.1% while keeping its 10-year Japanese government bonds yield target around 0%, largely in line with expectations.

In its outlook for economic activity and prices, BoJ policymakers said the country’s economy is “likely to continue on an expanding trend” through fiscal 2021.

Aussie Shares Snap 5-Day Winning Streak

The Australian Share market ended its five-day record-breaking winning streak with a modest pullback.

With US markets shut on Monday for Martin Luther King Day, Chinese markets closed on Friday for Chinese New Year and the ASX shut next Monday for Australia Day, there was not a lot of liquidity in the market and traders were taking some risk off the table.

Small-cap stocks were particularly hit hard, with the Small Ordinaries Index of Australia’s 200 to 300 biggest companies down 0.6 percent, while ASX’s 20 biggest companies collectively gained 0.05 percent.

USD/JPY Fundamental Daily Forecast – BOJ Holds Rates Steady; Bumps Up Growth Forecast as Global Risks Recede

The Dollar/Yen is trading lower on Tuesday, but that price action is being fueled by safe-haven buying tied to a drop in demand for higher-risk assets and lower Treasury yields that are leading to a tightening of the spread between U.S Government bonds and Japanese Government bonds. The catalyst behind the weakness in the Forex pair is the fear of contagion of the newly identified Coronavirus in Asia.

At 09:41 GMT, the USD/JPY is trading 109.947, down 0.232 or -0.21%.

There was other news on Tuesday, which had a limited influence of the USD/JPY price action. The Bank of Japan kept monetary policy steady and nudged up its economic growth forecasts, as the government’s stimulus package and receding pessimism over the global outlook took some pressure off the central bank to top up stimulus, according to Reuters.

The BOJ also signaled cautious optimism over the global economy after the United States and China agreed on a preliminary deal to defuse their bitter trade war, saying that risks surrounding the outlook have “subsided somewhat.”

As widely expected, the BOJ kept its short-term interest rate target at -0.1% and a pledge to guide 10-year government bond yields around 0%.

The BOJ also maintained a guidance that commits to keeping rates at current low levels, or even to cut them, until risks keeping it from achieving its 2% inflation goal subside.

The BOJ target rates in guiding policy under a framework dubbed yield curve control. It also continues to buy huge amounts of government bonds and risky assets in an effort to fire up inflation to its elusive target.

Growth Projections Revised Higher

In a quarterly review of its forecasts, the BOJ revised up its growth projection for the fiscal year beginning in April to 0.9% from an estimate of 0.7% growth made in October, helped by a boost from the government’s fiscal stimulus package.

The BOJ also upgraded its growth estimate for fiscal 2021, but largely maintained its price forecasts that show inflation missing its 2% target through early 2022.

“Japan’s economy is likely to continue expanding moderately as a trend” as the impact of slowing global growth on domestic demand will be limited, the BOJ said in the quarterly report.

“While risks surrounding overseas economies have subsided somewhat, they remain big,” it said, underscoring the BOJ’s resolve to maintain its ultra-loose policy.

Fiscal Stimulus

BOJ officials hope the government’s $122 billion fiscal package and robust capital expenditure will off the hit the economy hit during July-September. Furthermore, policymakers hope the stimulus will offset the weakness from the economy driven by soft global demand, lower exports and supply disruptions from last year’s typhoons that continue to weigh on factory output.

Even with the stimulus, analysts believe Japan’s economy likely contracted in the final quarter of last year.

Asia Wrap: Antibody For The Wuhan Coronavirus?

Gold

I’m reading this via Yicai (Chinese via google translation) of reports that a pharmaceutical company has announced it has an antibody for the Wuhan coronavirus, and gold markets have been very reactive already unwinding much of this morning’s buys.

Equity markets moved into risk-off mode overnight with E-mini S&P futures down 40bp, and Europe is expected to open the same. Asian weakness was led primarily by the spread of the coronavirus in China, which comes on top of a downgrade of global growth forecasts from the International Monetary Fund, and Moody’s cut the credit rating of Hong Kong.

Fears over the spread of SARS-like viral pneumonia in China have been bubbling away in the background since the start of the year, but with another fatality reported this morning, it provided enough evidence that the virus is spreading ahead of the Chinese New Year holiday. Also, Moody’s downgrade of Hong Kong’s rating to Aa3, although the latter is hardly a surprise, the septic combination seems to have provided enough reasons for those investors looking for a short-term exit point to head for the hills after seven straight weekly advances.

The Coronavirus outbreak can cause a massive demand shock, particularly to the consumption of services, especially travel. So, traders are hedging the tail risk. However, barring further outbreaks, the economic impact could be relatively short-lived. But having this outbreak occur in an environment of an already subdued global economy due to the US-China trade war, investor’s sentiment and reactions are perhaps getting magnified when being viewed through the trade war lens. And I would caution that generally, the market and especially the US have looked through these types of events in the past. So, we could see aggrieve unwind in Europe and the US markets given the there was possibly a more outsized reaction in Asia as those economies are at the epicenter of the breakout.

But on the macro side and something not so quickly sidestepped as it adds a thicker layer of skepticism about the green shoots of the global recovery. The sharp decline in Korea’s 20-day exports to China and the US has raised concerns about the health of the global growth recovery even more so in the wake of the IMF modestly reducing its global growth forecast.

The only real positive in the last 24 hours were reports that the US-France may be near a truce over their Digital Tax fight.

Germany’s ZEW survey is due at 1000 GMT. It looks set to show a slight improvement in January, rising to 13 from 10.7 in December, according to a Bloomberg survey. This print is enormous for the buy Europe argument as the naked truth will be evidenced in ZEW. Likely the highlight of the week for European markets

Oil

After predictably unwinding the Libya supply disruption premium, Oil markets have remained under pressure since the sharp decline in Korea’s 20-day exports to China and the US, which has cast a dark shadow over the global growth recovery. At least in the oversupplied oil sector, traders remain skeptical about just how much of an impact the early stages of global growth recovery will positively impact the prompt contracts.

Currency Markets

Yuan (ASEAN basket)

The risk-off sentiment sent the USDCNH above 6.90. Large outflows from onshore led to cash returning to the CNH market, pressing the front-end of the curve lower, while lower rates due to risk-off sentiment also weighed on the back end. The Yuan weakness has caused a rippling effect across the ASEAN currency basket, which is trading weaker following the contagion scare.

Yen

The Yen has been in demand attracting safe-haven flows, although I’m not so sure how safe Japan would be if an epidemic spread especially ahead of the economic boosting 2020 Olympics

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader