(07 February 2020)DAILY MARKET BRIEF 2: Oil under pressure as Russia refuses to cut production

US equities recorded timid gains on Thursday, while stocks in Asia edged lower on renewed anxieties about the spreading coronavirus as a Chinese doctor in Wuhan was reported dead and residents were asked to report their temperatures daily. More companies including Tesla decided to temporarily close their stores in China. While the Chinese New Year break will officially end next week, it is unsure if life will get back to its normal course as soon as next week. If the crisis extends, some companies may consider momentarily moving their production plants outside China. In this respect, Fiat Chrysler warned that a move to Europe is possible to avoid shortages in China-made parts. Measures like this will likely have an impact on prices worldwide and weigh on company profits. This is what investors are selling today, though the sell-off is much more contained compared to the panic headwinds that we have seen over the past two weeks. Beijing tried to reassure investors that the economic impact of the coronavirus will be temporary. Of course, the comments didn’t give an order of magnitude.

On the data front, the Chinese trade surplus narrowed to $39.16 billion from $46.79 billion. Exports rose 9.1%, as imports fell 1.5%. Chinese FX reserves fell more than expected to $3.088 trillion.

Nikkei fell 0.19%, Shanghai’s Composite reversed earlier losses, Kospi and ASX 200 lost 0.72% and 0.38% respectively.

WTI crude will likely remain under a heavy selling pressure as Russia blocked OPEC’s response to the coronavirus saying they need more time to evaluate the impact of the virus on the market. If OPEC fails to adjust production to an estimated 20% slump in Chinese demand, there will be little to support oil prices above the $50 a barrel.

FTSE (-0.22%) and DAX (-0.08%) futures hint at a lackluster start on Friday.

The US dollar extended advance against the euro and the pound. Cable fell to 1.2920 on mounting worries that the Brexit negotiations would be tough.

The euro fell another notch against the US dollar amid the German production fell 3.5% on month to December versus 0.2% contraction expected by analysts and 1.2% expansion printed a month earlier. German exports grew 0.1% over the same month, less than 0.5% expected by analysts. Hence, the weak German data came as a warning that the slowdown in German economy may have not bottomed out just yet.

The US nonfarm payrolls report is the highlight of today’s economic calendar. On Wednesday, the ADP report surprised significantly on the upside with a solid 291’000 print versus 157’000 expected by analysts and 199’000 printed earlier. Today’s data may show that the US economy added 160’000 new nonfarm jobs in January, more than 145’000 printed a month earlier but less than the past twelve-month average of 170’000.

By Ipek Ozkardeskaya