Written by Investing.com Staff, Investing.com
S&P Suffers Worst Day Since October on Wuhun Virus Fears
The S&P capped the first month of the new decade with its biggest daily loss since October as coronavirus-led selling intensified on concerns a pandemic could send the global economy into turmoil. The S&P 500 fell 1.77%, while the Nasdaq Composite slumped 1.59% and the Dow Jones Industrial Average lost 2.09%. The S&P and Dow ended January in the red.
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Fears of contagion gripped stocks amid growing doubt about whether China can contain the outbreak, with more than 10,000 cases reported globally so far, and the death toll rising to 213.
The White House on Friday declared the coronavirus a public health emergency in the United States and warned that people who pose a risk of transmitting the disease will temporarily be suspended from entry into the U.S.
The rapid spread of the virus has triggered recession fears as the impact on China’s already slowing economy could spill over into the global economy.
But some have said it is far too early to estimate the impact on global growth and suggested the recent selloff was a long time coming as stocks were overbought. Blackstone’s Byron Wien told CNBC:
“Global growth right now is projected to be greater than 3%. If this continues, and maybe even if it only continues for another month, you could knock that down below 3(%). I think the market was overbought. It was due for a correction. A correction is healthy.”
The selling on stocks was exacerbated by a slump in energy, paced by weakness in Exxon Mobil (NYSE:XOM). Exxon fell about 4% after the oil major missed quarterly estimates, which it blamed on short-term supply issues in its refining business.
Industrials also played a role in the broader selloff, paced by declines in Caterpillar (NYSE:CAT) and Honeywell (NYSE:HON) on weak quarterly results and guidance.
Caterpillar fell 3% after reporting mixed quarterly results and offering up a weaker-than-expected outlook on full-year performance, warning that global economic uncertainty would continue to weigh on performance.
Honeywell slipped about 3% as its quarterly revenue missed Wall Street estimates, with the industrial pinning the blame on impact from the grounding of Boeing’s 737 Max.
Consumer discretionary proved an exception to the rout on Wall Street thanks to a pop in shares of Amazon (NASDAQ:AMZN) after the e-commerce giant smashed earnings expectations. Shares rose 7%, but were off earlier highs.
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The dollar fell Friday, paced by losses against safe-haven currencies like the yen amid fears of a global pandemic as Chinese health authorities showed little sign they have a grip on the outbreak.
The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell by 0.41% to 97.25.
The new coronavirus has spread to nearly 10,000 people worldwide and the death toll in China rose to 213, raising concerns over China’s ability to contain the outbreak, which could severely curtail global growth.
Against the backdrop of the coronavirus risk, investors have piled into safe havens like the yen and Swiss franc.
USD/JPY fell 0.49% to Y108.42 and USD/CHF fell 0.54% to 0.9641.
U.S. data, meanwhile, showing the ongoing weakness in manufacturing did little to support the greenback.
The Chicago Purchasing Managers’ Index (PMI) jumped to 42.9, well below forecasts of 48.8. That was the lowest reading since September 2015, as the slump in manufacturing activity continues.
As a leading indicator of the U.S. economy, the Chicago PMI helps economists measure business activity and new orders.
Consumer spending, meanwhile, increased 0.3% in December, in line with forecasts.
With just hours to go until the U.K. leaves the EU, the pound added to gains from a day earlier, rising 0.69% to $1.3184.
The pound surged on Thursday in the wake of the Bank England’s decision to keep rates steady, with outgoing BoE Governor Mark Carney saying a cut would have risked inflation rising above the central bank’s target.
EUR/USD rose 0.46% to $1.1081 despite ongoing signs of weakness in the eurozone economy after a preliminary reading of fourth-quarter GDP fell short of forecasts.
USD/CAD added 0.26% to C$1.3243.
See also:
- Forex: Dollar Slips on Strong Pound, Yen Jumps as Virus Fears Bite
- Forex – Euro Slides as Weak Q4 Data Take Shape
- Forex – Yuan Flat as WHO Says China Can “Reverse the Tide” of Coronavirus’ Spread
Gold posted its best monthly gain in five on Friday as fears over China’s coronavirus epidemic drove more safe-haven buying in the yellow metal.
Gold futures for April delivery on New York’s COMEX settled the day down $1.30, or 0.01%, at $1587.90. That didn’t stop the contract from posting a gain of more than 4% for January, the best performance for a benchmark gold contract since August.
But spot gold, which tracks live trades in bullion, was up strongly, rising $14.11, or nearly 1%, to $1,588.03 per ounce by 3:00 PM ET (20:00 GMT). That gave bullion a gain of nearly 5% for January, also the best performance in five months.
TD Securities said in a note that cited gold’s superior performance to stocks on Wall Street, which were on track to their first monthly loss in five;
“This reflects the notion that the gold trade is one associated with loss-aversion.”
The investor flight from equities and other risky assets such as oil continued on Friday as China reported more than 200 deaths and 10,000 infections from the coronavirus.
The crisis has brought the world’s second-largest economy to a virtual standstill, with Goldman Sachs (NYSE:GS) revising down China’s 2020 GDP growth expectations to 5.5% from 5.9%.
Global markets briefly calmed late on Thursday after the World Health Organization gave China top marks for its efforts in battling the epidemic and containing it largely within its borders, despite the contagion spreading to nearly two dozen other countries. Yet, when trading resumed Friday, sentiment crashed again.
See also:
- Gold Prices Rise as Markets Price in Virus Impact on World Economy
- Gold Prices Down Amid WHO’s Comments on Virus Control, China Data
Oil prices had their worst monthly loss in more than a year on Friday as top buyer China remained virtually crippled by the coronavirus crisis. Attempts by OPEC and its allies to expedite a meeting to prop the market also barely helped.
Brent, the London-traded global benchmark for crude oil, settled down 71 cents, or 1.2%, at $56.52. Brent struck a four-month low of $56.16 in intraday trade.
New York-traded West Texas Intermediate, the benchmark for U.S. crude, settled down 58 cents, or 1.1%, at $51.56 per barrel. WTI hit a near-six-month low of $51.11 earlier.
With January coming to a close Friday, Brent posted a monthly loss of just over 14%, its biggest slide since November 2018, when it lost 22%. WTI fell nearly 16%, its worst since May.
Friday’s losses came despite Russia’s news agency Ifax reporting that Energy Minister Alexander Novak was agreeable to the plan by Saudi Arabia and others in the OPEC+ group to bring forward to next month their scheduled meeting in March, in an attempt to put a floor under the market.
Bloomberg, in a separate report Thursday, said Moscow appeared resistant to expediting a meeting as it would mean deeper output cuts for those involved – something independent oil producers in Russia were against. The Ifax report, however, suggested that the only problem for Moscow was agreeing with the rest of OPEC+ on a new date for the meeting.
Data showed China’s factory activity faltered in January, adding to fears about the fallout to the economy from the month-long coronavirus epidemic, which showed no signs yet of coming under control after having killed more than 200 people and infected nearly 10,000.
Goldman Sachs (NYSE:GS) revised down China’s 2020 GDP growth expectations to 5.5% from 5.9%.
Global markets briefly calmed late on Thursday after the World Health Organization gave China top marks for its efforts in battling the epidemic and containing it largely within its borders, despite its spread to nearly two dozen other countries. Yet, when trading resumed Friday, sentiment crashed again.
Phil Flynn, senior energy analyst at the Price Futures Group in Chicago, said:
“Fear (is) creeping back in because despite that (WHO) proclamation that it should not interfere with travel and trade, the fact is, it already has. The coronavirus has spread from China to around 20 countries, killing more than 200 people.”
See also:
- Oil Prices Drop Again, Set for Weakest Month Since May on Virus Hit
- Oil Prices Rebound After WHO Says China Could Control Virus
Natural Gas (ETF Daily News)
In November 2019, the price of nearby NYMEX natural gas futures rose to a high of $2.905 per MMBtu. The market ran out of buying at the start of the 2019/2020 winter season when stockpiles decline across the United States. The low level of inventories at the beginning of the 2018/2019 peak season for demand took the price to a high of $4.929 in November 2018. With stockpiles 485 billion cubic feet above the previous year in November 2019, natural gas did not make it to the $3 level at the beginning of this winter.
On the way lower, natural gas left a gap on the weekly chart from $2.738 to $2.753 in November, which continues to stand as a void. Meanwhile, the price moved steadily lower through December and January, and this week, another gap developed on the chart. Natural gas traded to a low of $1.994 on Friday, January 17, and it put in a bearish reversal trading pattern on the weekly chart. The high price for the week of January 21 was $1.98 per MMBtu, as of Thursday, January 23, creating another gap. Natural gas has ignored gaps, which often act as magnets for price action. The price of February natural gas futures was below the $2 level as the Energy Information Administration released its weekly inventory data on Thursday, January 23. The United States Natural Gas Fund (UNG) follows the price of the energy commodity lower. In the current environment, the leveraged Velocity Shares 3X Inverse Natural Gas ETN product (DGAZ) turbocharged profits for bears looking for lower prices.
New lows in natural gas this week
After last week’s bearish reversal, the price followed through on the downside at the start of this week as the price gapped lower on the open Sunday night and fell to $1.83 per MMBtu on the February contract.
(Source: CQG)
The monthly chart highlights the last time natural gas traded at such a low level in January was back in 1999, over two decades ago. In January 1999, the energy commodity futures hit a low of $1.695 per MMBtu during the first month of the year during the peak of the winter season. Instead of looking down at the $2 level as a psychological level of support, the natural gas futures market is looking up at what is now resistance.
The market expected a withdrawal of 92 bcf from storage
The EIA delivered what the market had expected on Thursday, when it reported that natural gas inventories fell by 92 billion cubic feet for the week ending on January 17.
(Source: EIA)
As the chart shows, stockpiles stood at 2.947 trillion cubic feet, 23.2% above last year’s level, and 9.3% above the five-year average for this time of the year. The market’s reaction to the latest EIA data was a continuation of the bearish price action.
(Source: CQG)
The ten-minute chart shows that while February futures rose to a high of $1.98 and worked its way into the gap between $1.97 and $1.994, it did not completely fill the void. The price proceeded to drop back into the low $1.90s in the aftermath of the data release.
Natural gas looks set to test the 2016 low
While the January 1999 low of $1.695 per MMBtu is a significant January low, the target on the downside is now critical support at the March 2016 bottom.
( Source: CQG)
As the monthly chart illustrates, the trend-following shorts will now set their sights on the March 2016 low of $1.61 per MMBtu over the coming weeks.
The natural gas market is in oversold territory, and the rising number of shorts could trigger an upside correction. However, the tone of the market points to selling on any attempt at higher prices in the current environment.
The United States Natural Gas Fund L.P. (UNG) . Year-to-date, UNG has declined -35.93%, versus a 24.80% rise in the benchmark S&P 500 index during the same period.
UNG currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #51 of 109 ETFs in the Commodity ETFs category.
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