The global risk tone has been alternating between risk-on and risk-off this week as the market is undecided about the potential impact of the coronavirus. Midweek there was an adjustment to the way Hubei cases were classified, which led to a large spike in reported cases from the Hubei region. The main issue going forward will be any evidence of supply chains being impacted by China’s considerable efforts to contain the coronavirus. If we start to see evidence these supply chains are being hampered, then expect global equity markets to start falling again.

Key events from the past week

• USD: Inflation data, Thursday, Feb 13. The core CPI reading was 2.3% y/y vs 2.2% expected, but this inflationary uptick should be negated by recent low oil prices. The market is still expecting one Fed rate cut this year even though the Fed’s dot plot is projecting no further rate cuts this year.
• NZD: Rate Statement, Wednesday, Feb 12. The NZD should continue to find buyers after the RBNZ adjusted its future interest rate path. The RBNZ now sees the interest rate at 1.00% in June 2020 and 1.10% in June 2021. This is revising up the previous forecast of 0.9% through to March 2021.
• EUR: Industrial Production, Wednesday, Feb 12. The EURUSD fell this week to the lowest level since May 12, 2017. This was partly helped by the reduction in eurozone factory activity with production levels at -2.1% vs -2.0% m/m expected. Expect Euro sellers on pullbacks as expectations rise for future ECB easing.

Key events for the coming week

• CAD: Inflation data, Wednesday, Feb 19. Futures markets are pricing in a 60% chance of a Bank of Canada rate cut by April. If oil markets fall further next week CAD will be pressured lower still. Inflation data on Wednesday will be key for the BoC. A weak reading here and USDCAD buyers can be expected.
• EUR: Manufacturing and Services PMIs, Friday, Feb 21. The slowdown in the Eurozone is only set to get worse if the spread of the coronavirus impacts Eurozone manufacturing. Investors will be looking for signs of a further slow-down from Manufacturing and Services PMI data out this Friday.
• Coronavirus: Watch out for the latest virus news. Keep alert to the latest news on the seriousness of the coronavirus spread. Watch out for supply chain issues being felt from next week onwards. Finally, note that for the past two weeks, Friday has been a strong risk-off day (equity selling, JPY, and CHF strength) heading into the uncertainties of weekend news. Don’t get caught out!