Asian stocks and currencies are mixed, as market participants still grapple with the true extent of the Covid-19 outbreak, with the death toll in China edging towards 1,500. The optimism mid-week was quickly dashed upon news that the perceived slowdown in the virus’ spread proved to be a false dawn.

This week’s developments underscore the fact that this situation remains highly fluid, and uncertainties continue to abound, especially around whether the global economy could withstand Covid-19’s economic toll. Until investors are offered a meaningful dose of certainty, markets should see a broadly supportive environment for safe haven assets such as Gold and the Japanese Yen, while emerging-market assets are expected to remain handicapped by the downside risks stemming from Covid-19.

US, China trade tariffs thaw on Valentine’s Day

The lowering of trade tariffs between the US and China today as part of the phase-one trade deal is being overshadowed by the economic risks posed by Covid-19. While lowering barriers to trade may go some ways in alleviating the pressures on the global economy, the ensuing tailwind is expected to be offset over the near-term by the drop in demand due to the outbreak.

Amid the travel bans, manufacturing disruptions, and the pullback in discretionary spending, policymakers may be forced into rolling out more stimulus measures to support their respective economies. The theme of global trade tensions will likely only return to the forefront of the market’s collective consciousness once the coronavirus outbreak begins to show sustained signs of stabilising.

US retail sales could tip Dollar index further into overbought domain

The Dollar index (DXY) has climbed past the 99 line and is trading around its highest levels since October. Dollar bulls are hoping for a positive surprise in the January US retail sales data, which is expected to show at 0.3 percent advance, in order to push DXY higher.

However, with the Dollar index now tipping over into overbought territory, the upward momentum may peter out in the near-term. Still, from a fundamental perspective, the Dollar should be able to retain most of its recent gains, considering the market uncertainties over Covid-19’s economic toll, as well as the US economy’s resilience relative to its developed peers.

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