In This Article:
* A look at the day ahead from EMEA deputy markets editor Sujata Rao. The views expressed are her own.
Feb 14 (Reuters) - China's announcement of more than 5,000 new coronavirus cases and 121 new deaths indicate the epidemic hasn't peaked yet. A Reuters poll forecasts Chinese growth of 4.5% in the first quarter, recovering to 5.5% for the whole year - the worst showing since at least 1990. Yet markets refuse to be too discouraged. A pan-European index is in fact opening at record highs, buoyed by … answers on a postcard.
The thinking appears to be the virus impact will not last, it’s not spreading outside China as fast as feared and above all, central banks can step in -- slower growth will bring more stimulus, or at least lower interest rates for longer. That makes shares more appealing. The virus causes a near-term demand shock, of course, but it’s a problem easily solved by central bank liquidity, is the message from research notes.
A frisson of nervousness is still running through the market. What’s leading the bull charge, at least in Europe, are defensive plays such as utilities or pharma. The Swiss franc remains at four-and-a-half-year highs versus the euro and the Japanese yen has not slipped much against the dollar. Emerging markets continue to underperform and the dollar continues to stand tall, possibly as capital flees Asian economies. The dollar index is set for a second week of gains, after posting its biggest weekly rise last week since June 2018.
But Chinese mainland shares have rallied; they closed 0.4% higher today and are up 9% since their Feb. 4 plunge. S&P 500 futures are also higher. World stocks are flat today after last night’s lower Wall Street close, but they are still heading for a second week of gains.
Data today is likely to show the German economy grew a few basis points in the fourth quarter. Weak euro zone gross domestic product is also expected -- 0.1%. The lacklustre growth is dragging the euro down, pushing it to three-year lows and threatening the 1.08 barrier. Forecast downgrades are coming in thick and fast -- one bank sees euro/dollar at $1.07 in 12 months’ time versus a previous prediction of $1.15.
U.S. retail sales for January may be of more interest. U.S. private consumption growth was slowing even before the virus scare, something the Federal Reserve has noted. But the United States still seem to be the only developed economy resisting the virus - data and company earnings have been hitting expectations, more or less. The current earnings season has seen 71.2% of U.S. companies beat estimates. In the UK, sterling has settled down after Thursday’s surge and gilt yields have eased. Europe’s STOXX 600 index is powering to yet another record high.