Swissquote Bank: OPEC experts meet to assess the severity of coronavirus on oil demand

February 4, 2020

Stocks rebound. OPEC experts meet to assess the severity of coronavirus on oil demand

by Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank

Chinese stocks fell more than 2% before rebounding on Tuesday. Shanghai’s Composite gained 0.57% and CSI 300 advanced 1.71% following an early slump. Stocks in Hong Kong added 0.87%, as Nikkei (+0.50%) and ASX 200 (+0.37%) edged higher.

The Aussie rebounded past the 0.67 mark against the US dollar after the Reserve Bank of Australia (RBA) maintained its benchmark rate unchanged at the historical low of 0.75% at today’s monetary policy meeting. Policymakers said that it is too early to determine the impact of the coronavirus outbreak on the Australian economy. But more importantly, the three rate cuts they delivered last year should give them some time to monitor the implications of the wildfires and the coronavirus on the activity before taking another step.

US stock futures extended gains after the S&P500 (+0.73%), Dow Jones (+0.51%) and Nasdaq (+1.43%) closed in the green on Monday. Mining and technology stocks led gains in New York, but Alphabet shares fell 5% in the after trading as Google unveiled its Youtube advertising revenues for the first time and the numbers broadly disappointed investors. Meanwhile, Google’s cloud business grew slower than the Microsoft’s, worrying investors that at the current pace, the company would never catch up with the competition.

Energy stocks (-1.34%) traded on the back foot as WTI crude dipped below $50 a barrel on worries that the coronavirus could curb the Chinese demand by 20%. Experts from OPEC+ will meet in Vienna today to assess the severity of the shock the coronavirus breakout may have on oil demand and decide whether a snap ministerial meeting would be necessary this month to increase production cuts to match the plunge in demand. Expectation that OPEC+ will react properly to the coronavirus shock will likely keep WTI crude bid near the $50 a barrel. But the upside potential could remain limited given the uncertainties regarding the magnitude of the shock on future demand and solid net long positioning in speculative trades.

FTSE futures are 1.30% higher on the back of a recovery in oil, commodity prices and a cheaper pound. COMEX copper gained 2%.

Cable slipped below the 1.30 mark on Monday as trade talks between British and EU officials started rough, setting the tone for perhaps another rocky eleven months. But the 1.30 mark maintains its stickiness as traders remained on the long side of the trade into the construction and services PMI data due today and Wednesday respectively. The January construction PMI may show a significant rebound to 48.1 from 44.4 printed a month earlier.

The euro shortly dipped to 1.1035 but steadied near the 1.1060 mark against the US dollar.

Gold retraced below its 200-hour moving average ($1572 per oz) on improved risk sentiment. Recovery in risk assets could erase at least another $20 from the yellow metal within the next week.