Risk Appetite Grows ahead of Powell, Oil bottom in place, Gold rally pauses, EM in focus

Frankfurt (Feb 11)  Global equities are higher across the board as investor optimism grows that Beijing is confident enough to allow its largest businesses to resume industrial production and on hopes that Fed Chair Powell’s testimony to Congress will signal that the coronavirus impact to the global economy could warrant further stimulus from the Fed.  It seems that Beijing is losing patience with allowing the economy to fall to stall speed, the worst levels in almost three decades. President Xi is pushing back and signaling leaders to avoid “more restrictive measures”.  The Chinese death toll is now over a 1,000 and the number of confirmed cases has climbed to 42,638, but the trend in net daily changes seems to be declining.  The net daily change in globally confirmed cases almost reached 4,000 on February 4th and has since declined to the 2,548 as of yesterday.

The global stock market rally is being powered by central banks and with a lot of the January and February data being tossed out the window, risk appetite may run wild for a few more weeks.  The PBOC will remain active in delivering more easing and with the Fed possibly on standby, risky assets could remain attractive in the short-term.

Oil

The bottom seems to be in place for oil prices.  It is way too early to be confident that peak of the virus will happen this month, but optimism is growing that we could see Beijing resume some normalcy in travel and trade outside of the Hubei province.  It seems President Xi can’t stomach any further weakness to the growth outlook and we will see much of China return back to normal rather soon.

With no help from the OPEC + alliance, oil prices have managed to stabilize and move a way from the dangerous threshold that could have opened the door to extreme selling.  Oil could see further upside today if Powell delivers a dovish testimony that weakens the dollar.  The risks to the outlook are obvious and the Fed could shift to ready to act mode.

Gold

With US stocks back in record-setting mode and green everywhere else, it is no surprise that gold prices are slightly softer today.  With investors focused on Powell’s testimony later today, we could see gold’s bullish momentum reassert itself as the Fed chair might sound more dovish as he explains how the coronavirus in China presented a new risk to the outlook.  Gold’s longer-term bullish backdrop will remain primarily supported on physical demand from central banks and rising risks to the global growth that will trigger another wave of worldwide stimulus.

FXsteet