Equities market has been shrugging off COVID-19 fears this past week. This is market greed at work. The asset injection by the PBOC is helping fuel this greed. There are 2 ways of looking at this. It’s either the market is trying to trap more investors at the top or the recent drop was already enough to price-in the impact of the COVID-19. Either way, we can expect some sell offs to continue as the recent rally seems to be over done.
I continue to be bearish on risky currencies AUD, NZD and CAD for the short-term. EUR is fundamentally bearish because of the ECB. GBP will have its down days caused by uncertainties in securing a deal with the EU. However, it can act as safe haven when paired with risky commodity currencies.
USD, CHF and JPY will continue to act as safe haven for the next 4-6 weeks.
For oil, I am anticipating 2 events that has yet to unfold. One is for Russia to decide if they will cut oil production that has a short to medium term impact to pushing price higher, perhaps Brent @62 +/-2.00. Second is when Libya resolves her conflict and start oil production again that could cause a short-term sell off, perhaps Brent @56 +/-2.00.
The tricky part is we don’t know which event could happen first. OPEC+ plans to meet earlier than the scheduled March 5 meeting. If they meet in the coming weeks, then it justifies the current technical rally on oil. If Russia decides to cut output, then it might just be sell on news scenario.
If Libya resolves conflict ahead of the OPEC meeting, we might see oil price drop for a while but rebound in anticipation to production cuts by OPEC+.