Pre NY Open: Markets remain skittish

Markets

More travel alerts, the latest coming from Taiwan, which raised it to travel alert level for Korea, has blunted investor sentiment. And adding to the deteriorating view, HK reported a massive decline in both exports and imports in January Exports fell 22.7% y/y vs. -3.7% consensus, after +3.3% in December. That's the weakest print since -23.0% y/y in February 2009. If this is a foreshadow of things to come, I think investors across the globe will need to fasten in as things could get incredulously worse before improving 

With the China manufacturing PMI coming out on Feb. 29, I think it's overly optimistic to expect the print to come in at 45 from 50, given that industry in China has effectively been on lockdown this month.

After yesterday's COVID-19 outbreak news spurred a global risk-off move, investors remain incredibly skittish about all things COVID. So, we could see more of the same where US Treasury yields continue to slide as investors move out of equities looking for safety amid fears the coronavirus will damage the global economy. 

Gold

There was a sharp pullback in gold at 230 PM EST yesterday after 1.8 million ounces went through without an obvious trigger in terms of headlines. A Zero Hedge article out suggesting official (reserve managers) names could be behind this might not have helped, while others we're guessing it could be related to equity-related margin call coverage.

But after checking the calendar, the sell-off could very well be related to the COMEX options expiry today, coupled with the possible start to month-end reallocation flows that might be more to blame. But I have no ax to grind debating what the sell-off was about other than to suggest UST yields bounced off Monday's lows, which may have triggered profit-taking. 

And while this is of little consolation to the gold investors who just lost $55 an ounce. But bullion should continue to find more support from accommodative monetary policy worldwide, a rapidly shrinking pool of risk-free assets, and lower beta of traditional risk-off currencies even without triggering worst-case pandemic fears. I continue to prefer buying dips. However, I expect a fair bit of resistance and profit-taking around $1680/1690 should gold get there again the next few days. Today's flow has been better selling by fast money accounts still after long term investors seem to have had their fill after accumulating more length over the past week (based on flow)

Oil

Oil prices have recovered after Monday's coronavirus-linked sell-off following supportive comments from Saudi Arabia's Energy Minister, who remains confident in the OPEC+ partnership. Although the group has not yet decided on whether to extend the existing agreement or to cut further, the decision to delay a response to allow a better understanding of the extent of the coronavirus demand impact makes sense. But at some point, the market will grow weary of OPEC kicking the can down the road so they will need to fish or cut bait. But markets will remain skittish, and oil rallies short-lived while there is still even the slightest concern over the outbreak becoming a pandemic.