Last week saw a return to risk-off tones as concerns are growing over the spread of a coronavirus from Wuhan, China. The coronavirus has spread rapidly this last week as preparations get underway for the Chinese Lunar New Year. The market has memories of the 2003 SARS virus which cost the Asian and Pacific region over $50 billion dollars. One report from the Journal of Environmental and Public Health made a case for China’s GDP having being lowered by 1% due to the impact of SARS. So, Asian equity markets have understandably retreated from recent highs on concerns the latest virus is going to be a drag on the Asian-Pacific economies.

Key events from the past week

  • CAD: BoC turns dovish, Wednesday, Jan 22. The BoC surprised markets with a dovish tilt and Governor Poloz acknowledged that he had ‘opened the door’ to rate cuts ahead. This weakened the CAD. USDCAD spiked higher on the rate announcement and ground higher to 1.3151 after the press conference.
  • ECB: Rate Statement and Press Conference, Thursday, Jan 23. The ECB kept rates unchanged and Christine Lagarde said that risks are,’tilted to the downside, but less pronounced’. However, she said that the subdued inflation outlook meant that monetary policy would have to remain accommodative for a prolonged time.
  • AUD: Employment data surprise, Thursday, Jan 23. RBA chances of a rate cut at the February meeting dropped from 50% to only around 20% after the surprise increase in part-time jobs and tick lower in unemployment rates. Labour data is key for the RBA and this positive print should keep the RBA on hold next month.

Key events for the coming week

  • USD: FED funds rate, Wednesday, Jan 29. The last dot plot had rates on hold through 2020; however, market expectations are still for a 25bps cut by December. Watch the rate statement for any latest shifts in the Fed’s thinking on the path of US interest rates.
  • GBP: Interest rate statement, Thursday, Jan 30. The BoE has had mixed signals lately from dovish BoE members, weak retail sales figures, but some positive wage and business confidence data. Watch out for flash PMI figures on Friday 23rd considered by many as the defining data point for the decision on Jan 30th.
  • Coronavirus: Watch out for the latest virus news. If the spread of the coronavirus increases and it most likely will during the Chinese Lunar New Year travel period, expect risk-off flows to continue out of Asian equities.