Effects of the coronavirus grow as panic in markets

28 Jan 2020

The coronavirus epidemic is gaining momentum. At least, according to statistics. The number of deaths is already close to 100, and the number of cases is close to 3,000. China is forced to react harder. The magnitude of the effects on the economy is growing exponentially. Lunar New Year celebrations are extended for at least 3 more days.

Actually, more than one review can be devoted to the chronicles of the coronavirus and attempts to assess their consequences. But we are still more interested in the reaction of financial markets and how to capitalize on this force majeure.

Panic in the financial markets after the weekend intensified. The Fear Index (VIX) literally skyrocketed, increasing by more than 40% in a couple of days!

So far, everything is developing exactly with our recommendations: safe-haven assets are growing in price, stock markets have rained down, risky assets like the Russian ruble are losing, oil and other commodity assets are continuing to decline. So further deterioration of the epidemic situation will obviously be accompanied by the development of these trends.

Therefore, the basic trading plan is still unchanged: we buy gold and the Japanese yen, sell the Russian ruble, sell shares.

As for oil (WTI brand), the support we outlined 51.20 +/- is clearly the goal of the current movement. If events will develop as they develop, and the asset will be able to break through this support, then oil sales may well become uncontrolled. But until this happens, 51.20 seems to be a good point for shopping (for aggressive traders, conservative in place, we would wait until the markets calm down).

Today, quite important statistics for the United States will be published (orders for durable goods and the level of consumer confidence), but let's be realistic - everyone is not up to it now.