Investors over in Europe are ready to push the markets higher and pick up the moment from Asia. Most of the Asian indices closed in positive territory shrugging off the concerns related to the outbreak of Coronavirus. Speculators do believe that the impact is going to be limited, which is really difficult to digest.
The misleading number, for some, is the infection rate and they are taking this out of context. The fact is that a large labour force is out of work due to this virus, even if we consider Foxconn, one of the largest supplier of Apple (NASDAQ:AAPL) parts, only 10% of its workforce has returned since the factories have reopened. We have no idea when the rest of the factories—like these—will return to their 100% capacity. If we see the labour force back at work as early as March, then once could say that a bullish case does have strength for the equity markets, but in the absence of this, buying equities just on the back of some hope would be a dangerous gamble.
Gold Continues Its Decline
Gold prices are on the back foot today as investors didn’t get what they wanted from the Fed officials yesterday who downplayed the risk associated with Coronavirus. If we look at the fund flow of GDX (NYSE:GDX) ETF, one of the largest gold holding ETF by Vaneck, it shows that the total net money flow has been negative as of yesterday and this confirms the fact the downward move in the gold price is backed by institutions as well.
Moving forward, traders are going to listen to the Federal Reserve Chairman’s comment very closely today and they will gauge his concerns about the outbreak of the virus. Among the gold bulls, the hopes are that he acknowledges the fact that the outbreak is going to have an influence on the US economy. The fact is that world supply chain is heavily disrupted and this is going to shave some serious basis points out of global growth.
Given that the economic numbers out of China have not given us the actual picture about the health of the Chinese economy, the central bank officials around the globe are not considering the virus impact as a major threat. I am not saying that this is going to halt the world's global growth but one needs to be super careful when they think about the impact of this virus.