(14 February 2020)DAILY MARKET BRIEF 1:Oil up despite IEA’s expectation of lower demand.

The US equities swung between hope and despair, but the three major indices closed lower on Thursday. Worries that the coronavirus cases may have spiked added to the New York Fed’s announcement that it will further curb repo operations.

Asian stocks were mixed. Nikkei (-0.59%) and Topix (-0.60%) fell on first death from coronavirus in Japan and the unexpected 0.2% m-o-m contraction in tertiary activity versus 0.1% rise expected by analysts and 1.4% increase printed a month earlier.

The ASX 200 (+0.38%), Shanghai’s Composite (+0.38%) and Hang Seng (+0.39%) gained as investors relaxed after the World Health Organization (WHO) warned that the spike in number of cases, which was due to the change in diagnosis methodology, didn’t necessarily reflect a sudden deterioration in the situation.

Alibaba shares fell 0.55% in Hong Kong as the Chinese e-commerce giant said the coronavirus outbreak will have a significant impact on consumers and merchants. Indeed, a sudden and substantial slowdown in economic activity, quarantined cities and limited traffic will certainly take a toll on the first quarter numbers, but we believe that the negative impact on online retailers will be less than many fear, as prolonged home stays may have somewhat boosted online sales in China. Anyway, the company reported 58% rise in profits in the fourth quarter, as Single Day sales hit a record of $38.3 billion on November 11th.

Sentiment in oil was mixed but WTI crude continued its recovery and settled above the $51.50 mark in Asia. The IEA said that the coronavirus outbreak could result in a 435’000-bpd fall in demand this quarter, versus the previous expectation that it would increase by 800’000 barrels. Waning demand, the existing global glut, the OPEC’s hesitancy to react to the shock and the actual long skew in net speculative positions in oil will likely encourage another and perhaps a sustainable dip below the $50 handle.

Gold consolidated between the $1570/$1580 range as investors preferred keeping a foot in the precious metal to stay hedged against the risk of a further market sell-off due to the coronavirus up-and-downs.

The US dollar index surged to 99.15 as inflation in the US advanced quicker than expected to 2.5% in January, versus 2.4% penciled in by analysts and 2.3% printed a month earlier. The rise was mostly supported by a nearly 13% jump in gasoline prices, hence should readjust to the downside in the coming weeks before translating into hawkish Fed expectations.

By Ipek Ozkardeskaya