The week results: the epidemic swing, the yen status

The coronavirus epidemic continued to be the main focus of financial markets last week. And if the week began with a rather optimistic attitude of investors against the background of a decrease in the number of new cases of disease and deaths, then it ended on a very minor note: the epidemic spread to South Korea and Japan.

In addition, analysts after the warning increasingly began to think about the consequences of the epidemic and quarantine in China (Goldman Sachs estimates that economic activity in China does not exceed 50%). And the longer restrictive measures last, the worse the mood of investors. They can be understood: dozens, if not hundreds of millions of Chinese, temporarily do not work and lead an exclusively isolated lifestyle. As a result, production does not work at full capacity, the transport system is partially paralyzed, consumption has fallen sharply, the clouds over global supply chains are gathering more and more with each day of downtime. That is, an economic epidemic is beginning, which could very well become a global pandemic.

Not surprisingly, against this background, gold is updating the highest mark since the beginning of 2013 and continues to confidently move to the 1800 area.

The current week in terms of the epidemic is likely to change its focus. If before that all attention was focused on China, and the whole epidemic was geographically localized. Then this week, investors will focus not so much on China as on other countries where the number of diseases has risen sharply: Japan, South Korea (last week the number of cases doubled almost every day), Italy and Iran. Judging by the current dynamics, it is likely that the reserve of bad news has not yet been exhausted.

As a result, the stock markets finally broke down and rained down. It will be difficult to say whether the current sales will become the beginning of a full correction, but there are all the prerequisites for this.

Another injured last week was the Japanese yen. After the failed data on GDP growth rates in the 4th quarter, everyone realized that the third-largest economy in the world is one step away from the recession. As a result, the status of the yen as a safe-haven asset is damaged. However, we will not write off the yen from the accounts and will sell it within the day simply because the pair climbed very high (with mandatory small stops because we are reporting that we are going against the will of the market).

Europe has traditionally already disappointed in terms of macroeconomic statistics and the general state of affairs, especially in Germany. Accordingly, the talk of a global recession against the backdrop of the problems of Japan and the Eurozone no longer seems fabrications and conspiracy theories.

For fairness, we note that on Friday the data on business activity indexes in the Eurozone came out better than forecasts at the highest levels for the last 6 months, but so far this is only a drop of positive in a sea of negativity. In the UK, production growth generally showed a 10-year high, which allowed the pound to perk up and work out our recommendation on its purchases.

As for macroeconomic statistics this week, the week promises to be quite calm. So you can focus all your attention on the news about the epidemic and expert estimates of the extent of damage both for China and the world as a whole. Our basic positions for the current week are as follows: we are looking for points for buying gold (but given the strong oversoldness of the asset, we are doing this conservatively and with mandatory stops), we sell oil, we sell EURUSD, we buy GBPUSD, we sell USDJPY above 112 with short-stops.