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Top 5 Things to Know in the Market on Friday, 24th January

By Geoffrey Smith

Investing.com -- The coronavirus death toll rose to 25, while travel bans and other measures taken by the authorities are posing an increased risk to China's growth outlook for the year, warned S&P. The slump in oil prices caused by the virus has led to increasing talk of OPEC and Russia reviewing their output cut deal to shore the market up. Business surveys in Japan and Europe turned up modestly in January, with the U.K. a particular bright spot. Stocks are set to open higher after a mixed bag of earnings on Thursday ended on a bright note from chipmaker Intel (NASDAQ:INTC). Here's what you need to know in financial markets on Friday, 24th January.

1. A clear and present risk to Chinese growth, but not a global emergency

The official death toll from the coronavirus rose to 25, although the World Health Organization continued to designate the outbreak as a matter of global, rather than local, concern. Most of the victims so far have been elderly, according to various. The youngest confirmed victim was 36 years old.

A total of 10 Chinese cities have now put restrictions on travel, although with the disease now being confirmed in 32 of 34 Chinese provinces, the virus has already spread thoroughly throughout the country.

A much larger number of cities have curbed public ceremonies to celebrate the lunar new year and closed centers such as movie theaters, creating a clear risk to demand and growth in a week that is China’s most important holiday. Standard&Poor’s Ratings Group estimates that a major epidemic could take as much as 1.2 percentage points off growth this year.

2. PMIs show improvement in Germany, U.K., but drags elsewhere

The euro zone can’t catch a break. Just as its biggest economy, Germany, showed signs of pulling out of the funk it’s been in for the last 18 months, strikes in France and – apparently – slowdowns in Italy and Spain mean that the region only showed “muted” growth at the start of the year.

That’s the takeaway from the ‘flash’ purchasing managers indices posted by IHS Markit, which showed the composite eurozone index stuck at 50.9 in January. German manufacturing, traditionally the continent’s most reliable growth engine, posted the smallest contraction since June last year, with an index reading of 45.2.

By contrast, the debate over an interest rate cut from the Bank of England got even muddier after the composite PMI rebounded to 52.4, its highest level since May – albeit at 49.8, manufacturing was still below the 50 mark that would signify growth.

Both GBP/USD and EUR/USD fell slightly on the back of the releases, pushing the dollar index to a seven-week high.

3. Stocks set to open higher as virus fears recede

U.S. stock markets are set to advance again at the opening Friday, after shaking off a mixed bag of results on Thursday that ended on a bright note from Intel (NASDAQ:INTC) (see below).

By 6:20 AM ET (1120 GMT), Dow futures were up 66 points, or 0.2%, while S&P 500 Futures were up 0.2% and Nasdaq 100 futures were up 0.3%.

European markets overnight turned sharply higher, with the benchmark Stoxx 600 rising 1.2% and the U.K. FTSE 100 rising 1.6% as fears about the scale of the coronavirus eased, while the PMIs in the U.K. and Germany bolstered sentiment. Chinese markets are now shut for the week-long national holiday.

4. Intel's figures bolstered by data center growth

Intel stock rose 6% in after-hours trading after the company reported better-than-expected sales and earnings for the three months through December, thanks mainly to the continued increase in demand for chips from data centers that power Cloud-based servers.

Another boost came from a 2% rise in sales at the PC division, due largely to an surge in demand for newer PCs as Microsoft’s decision to end support for Windows 7 led to an increase in upgrades to newer models.

The results added to strong reports from Taiwan Semiconductor and STMicroelectronics this week, CEO Bob Swan said the company was performing above its medium-term targets but warned that supply was “tight”, which some interpreted as an admission that the company was vulnerable to losing further ground to competitors.

5. Talk of more crude output cuts grows

Crude oil continued to struggle amid fears that the coronavirus will hit Chinese demand. U.S. crude futures fell 0.6% to $55.27 a barrel, while Brent futures fell 0.6% to $61.64.

The slump in prices in the last couple of days has prompted some active jawboning from major producers, with officials from Saudi Arabia and elsewhere talking up the possibility of extending and deepening production cuts that have been agreed through March.

The Russian news agency Tass reported unidentified sources earlier that an extension of the current deal through the end of 2020 was under discussion, while a review of countries’ individual quotas may take place in June.

After the close, Baker Hughes will update the market with its latest numbers on active drilling rigs. The company gave a bleak outlook for its U.S. land-based business earlier this week as it presented its quarterly number.

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