Outbreak of a pneumonia-like virus in China sends investors to save-haven assets
21 January

Outbreak of a pneumonia-like virus in China sends investors to save-haven assets

 

China’s yuan fell sharply pulling away from six-month highs against the dollar, while the yen rallied as the spread of a pneumonia-like virus in China sparked a sudden bout of risk aversion and rattled world markets. Safe-haven Japanese Yen and the Swiss franc gained ground as markets aim to avoid risk following the outbreak. The yuan lost almost 0.7% in offshore trading to 6.845 per dollar, off six-month highs hit just yesterday. The moves rippled across Asia to currencies linked to Chinese trade and tourism, with the Australian dollar shedding 0.4% to $0.685, its lowest in over a month. The New Zealand dollar was down more than 0.3% at $0.6594, while the Korean won dropped 0.8%. In contrast, the yen went below 110JPY per dollar as investors rushed for safe-haven assets. The Swiss franc too firmed a touch at 0.96800 to the dollar. The euro and sterling softened against the dollar, with focus turning to data later this session for latest clues on the economic outlook. Europe’s single currency traded at $1.10861 while the pound reached 1.301$.

 

European shares slipped this morning as mounting concerns over a new coronavirus originating in China sparked demand for safe-haven assets. FTSE 100 skidded to a near two-week low touching below 7560 with global markets rattled by the spread of a new coronavirus in China, while traders eyed jobs data which could dictate whether the Bank of England will cut interest rates this month. Dax is trading at 13484 while French CAC is now at 6020, compared to yesterday’s floating around 6080.

 

Oil prices fell nearly 1% as investors expected Libya’s oil production to eventually resume following a force majeure declared by the oil exporter on two major oilfields amid a military blockade. Brent was down over 1.4$, at $63.74 per barrel after rising to its highest in more than a week yesterday. U.S. West Texas Intermediate was down 55 cents at $58.19 a barrel. Libya has been producing around 1.2 million bpd recently and if exports are halted for any sustained period, storage tanks will fill within days and production will slow to 72,000 barrels per day. Anti-government unrest in Iraq, another major oil producer, also had initially supported oil prices, but officials later said production in southern oilfields has not been affected by the unrest. Adding to supply, Guyana exported its first-ever shipment of crude marking the tiny South American nation’s debut as an oil exporter.

 

Trump and French President Emmanuel Macron have agreed to a truce in their dispute over digital taxes, a French diplomat said following a phone call between the two leaders but  France’s Finance Minister Bruno Le Maire said talks with the United States on the taxation of digital companies “remained difficult” despite a pledge from the two countries to avoid a trade war until at least the end of this year. Le Maire said the target remained to impose a minimum tax rate on companies which at the moment pay no levies. Now neither side will impose punitive tariffs this year, and the two countries will continue negotiations along with their European partners until the end of 2020 in order to agree a global framework that ensures tech companies pay an appropriate amount of tax. The U.S. had been threatening tariffs as high as 100% on $2.4 billion of French goods in retaliation after Macron last year hit multinational companies — many of them American — with a tax on their digital revenues, and the EU had said it would retaliate.

 

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