Renewed fears of a possible U.S. Debt selloff by China shook the market after Beijing-based Global Times tabloid newspaper under the auspices of the Chinese Communist Party published an article last Thursday quoting Xi Junyang, a professor at the Shanghai University of Finance and Economics, that was saying that “China will gradually decrease its holdings of U.S. debt to about $800 billion under normal circumstances”.
Xi Junyang has not provided any timeframe of such possible selloff. But, he added that “China might sell all of its U.S. bonds in an extreme case, like a military conflict.
The recent drop in the world's stock indexes by four to five % is associated with the "second wave" of the spreading of the coronavirus. The "lesions" caused by the spread of the virus went far beyond the epicentre - mainland China - and are affecting the heavily populated and industrial regions of Europe, especially Italy, and regions in Korea and Japan are also being affected. The fears that the effects of the virus on the world economy, world's production and trade are triggering investment risks. Such risks are in place and they are huge.
Gold prices on Thursday went sky high after breaking through the nine-year resistance level of $1612 toz. The last time gold futures temporarily jumped to this level was this January amid the US-Iran military tensions. At that time gold jumped due to the extreme risk of the large-scale military outbreak. Now it is different: markets are more or less quiet and have turned to a positive outlook, despite the coronavirus uncertainties. The CBOE Volatility Index (VIX) that gauges market risk and investors' sentiment is around 15, which is a rather moderate level.
The British Pound fell under pressure since December Parliament elections in the United Kingdom from 1.34 to 1.29 in February 2020. The Pound lost 2.5% last week only as investors fear inappeasable British Prime Minister Boris Johnson with his tough stance with the EU after Brexit could not make a trade deal with EU by the end of 2020.
However, the positive signs of economic recovery in the UK came with the GDP statistics released on Tuesday. British GDP rose 1.1% year-on-year in 4Q2019 that beats the forecasted 0.8% but lower than the previous figures of 1.2%.
The Canadian Dollar lost more than 2% in January, legging it to its strong resistance border of 1.3230 to1.3270. There are several reasons that could contribute to such a harsh slide. The Canadian economy is struggling. The annualised GDP in the fourth-quarter of 2019 - which is yet to be released - is expected to replicate the year's third-quarter, which was at 0.3%, much less than 0.9%, where the GDP stood in the second-quarter of 2019. The unemployment rate in December 2019 remained high at 5.6%, slightly below the 5.
The British Pound posts gains after the meeting of Bank of England (BoE) outlined positive economic developments in the UK. The Pound rose above 1.3080 against the US Dollar immediately after the decision and it continues to rise.
"The most recent indicators suggest that global growth has stabilised, reflecting the partial easing of trade tensions and the significant loosening of monetary policy by many central banks over the past year.
Brent oil bounced from $58 a barrel, an October 2019 low, where it plummeted from $66 a barrel on Jan. 20 amid coronavirus fears. The sharp drop in oil prices emerged on concerns that demand for oil could drop because market demand will become weaker. However, the negative effect on the world economy due to the virus could be overestimated so far. Thus, an emotional pressure on oil prices could be seen as too excessive. More objective support factors could gradually affect the price of oil.
OPEC wants to extend current oil output cuts until at least June, according to Reuters.
The Australian Dollar fell under pressure this year due to the slumping exports and the devastating wild fires in 2019. The AUD/USD slid as much as 4% this year, trading at 0,6740 on Jan. 28, which was a three-month low.
The negative macroeconomic factors will probably have a lasting effect on the local economy while an outbreak of a new virus in China will hurt Australian trade. The country is heavily dependent on Chinese imports, particularly on coal, metals and liquid natural gas.
Gold futures on Monday continue to rise amid coronavirus outbreak in Chinese city of Wuhan. The price went almost to $1586/toz testing last week's highs at $1588.1 recorded on Friday.
Gold traditionally acts as a safe haven for investors when risks are on throughout the market and one might consider that the rise should be steeper amid current uncertainties. Gold prices rose throughout 2019 - throughout the uncertainties with the US-China trade tensions - from $1300/toz at the beginning of the year to $1550 at the end of the year. Another high in gold price was reached on Jan.
World markets are starting to assess new risks amid the breakout of the new coronavirus (2019-nCoV) in China. Markets fear the decease could quickly become worldwide that would mean restriction in traveling, goods production and exports as well as consumption. Investors are reminded previous SARS virus outbreak in the same Chinese province in 2002-2003 led to $59 billion losses, according to Asian development bank.
Fears made risky assets much less attractive and led to a decline on the emerging markets to December 2019 lows. Shanghai composite dropped to 2950 on Jan.