Morning Commentary: An Auspicious Beginning to the Year of the Rat
A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.
An Auspicious Beginning to the Year of the Rat
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David Atkinson Foreign Exchange Sales Manager
It is rare when we come into a new FX trading day and find that the biggest moves are among semi-major currencies; the Chinese renminbi is trading down by roughly -0.40 percent today. China also has the worst performing equity markets today with the Shanghai Composite down -2.75 percent and the Shenzhen index down -3.45 percent.
This, of course, is in response to fears of the coronavirus spreading outside of Wuhan, China. There are 500 confirmed cases, and the current death toll is 17. Wuhan and two cities – totaling around 20 million people – have restricted travel right when the country is about to start a week-long celebration of the Chinese New Year. That is the equivalent of closing off New York, LA, Chicago and Houston with a couple million to spare. This is the Year of the Rat, and the last time we had the Year of the Rat was 2008, which was celebrated about 10 months before the global economy melted down with the Great Recession. Let’s hope we do not see anything like that this year.
This outbreak has invariably brought comparisons with the 2003 severe acute respiratory syndrome (SARS) outbreak. It appears that the coronavirus is less virulent than SARS, but the much improved transportation infrastructure China has now increases the chances of the virus escaping throughout the country. Economically, China is of course much more dependent on consumer confidence than it was in 2003, which makes this outbreak more of a financial hit on the country.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
In Europe, there was an ECB meeting today, the highlight of which was President Lagarde’s press conference where she said she expects to complete the banks’ strategic review by the end of the year.
In the U.K., the British pound has barely moved, but chatter among sterling currency strategists are that we will need to remember how we traded the British currency in the good ole’ days before Brexit. Back before 2016 there was actual trading on economic and market fundamentals before the currency became a slave in its direction to the single factor of Brexit.
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