Looking at the prices of individual financial instruments, it is impossible not to notice an important u-turn. Investors are selling stock, stock indices are falling, gold is rising along with the Japanese yen and Swiss franc. The return of investors to the so-called safe havens seems to be obvious at the moment.
Before noon, US stock indices futures contracts seem to be moving back from their record levels. S&P 500 and Dow Jones Industrial Average futures lose around 0.7 percent and the Nasdaq 100 over 0.8 percent. In turn, the German DAX, which also set a new historic high recently, goes back by about 1 percent. Meanwhile, the price of gold increased by almost 0.5 percent, and the Japanese yen in relation to the dollar gained almost 0.4 percent. Such a strong return to assets considered as safe seemed to trigger a sharp increase in new coronavirus-related cases in China.
The fear on the markets appeared after the province's which is the epicenter of the virus outbreak announced a sharp increase in confirmed cases and an increase in the number of fatalities due to a revised new method of diagnosing coronavirus cases. Consequently, the number of new cases in Hubei Province increased to 14,840 on Thursday from 2 015 the previous day, and the number of fatalities increased to 242 on Wednesday. It was the fastest daily increase since December.
In addition to a significant increase in risk aversion, it is also worth paying attention to the exchange rate of the main currency pair EUR/USD, which was at its lowest level in three years. According to data from the fx options market presented by Bloomberg, more and more investors are preparing for the exchange rate to drop below 1.08. Should this happen, then the situation on the USD/PLN pair should also be taken into account, which is somewhat a mirror reflection of the EUR/USD behavior at a stable EUR/PLN exchange rate. The zloty could then be potentially under pressure.
Therefore, in addition to macroeconomic data, the subject of epidemics can still cast a shadow on investors' behavior on various asset classes and it is worth being prepared for strong returns from strong risk appetite to growing fear.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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