- Global Equities Maintain Cautious Outlook on Coronavirus
- DAX Retests Trendline Support
- US Yield Inverts, However, Recession Fears are Misplaced
Risk sentiment remains on the backfoot as concerns over the Coronavirus continues to mount with over 4500 confirmed cases, while the death toll has risen to 106. Consequently, US equities posted its largest drop since October, while safe-havens were in demand, particularly US treasuries. Assessing the full scale of the Coronavirus remains difficult given that, however, the increasing number of cases, alongside the rising spread of the virus to overseas is likely to keep safe-havens underpinned in the meantime. With that said and as has typically been the case, previous virus outbreaks have only had a temporary impact. As such, while the US 3-month/10-year yield spread has slipped back into inversion (for the first time since October), the subsequent recession fear concerns are likely to be misplaced.
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Dow Jones:US equity futures are slightly firmer following yesterday’s pullback with the Dow Jones marginally higher by 0.2%. Although, given that the spread of the virus could get worse before improving, risks remain tilted to the downside for equity markets. As such, we look a test of Monday’s low (28,451) where a firm break puts the 2020 low in focus at 28,121.
Dow Jones Price Chart: Daily Time Frame
Source: IG Charts
DAX: Following the rejection at 13,600 the DAX dropped towards trendline support, which has been in place sine August 2019. That said, eyes will on for a firm break below which could pave the way for a larger fallout to the 76.4% fib situated at 12,792. Reports from the DPA stated that there has been a confirmed case of Coronavirus in Germany, although, while there had been limited market reaction for German assets, the risk of spreading is likely to see the DAX maintain a cautious outlook.
DAX Price Chart: Daily Time Frame
— Written by Justin McQueen, Market Analyst
Follow Justin on Twitter @JMcQueenFX