How will the coronavirus affect commodity markets, and how will it affect other markets? The virus remains a top news item. Wednesday the World Health Organization declared the global spread of the virus, now found in 16 countries, “a grave concern.”
While all this is going on, Chinese markets have been closed. The Chinese New Year was observed on Jan. 25, and the celebration lasts much longer than ours.
“The Chinese markets have been closed for this holiday, going back to Thursday of a week ago,” said John Payne at Daniels Trading in Chicago. “They haven’t traded this story yet. There’s a real threat, in my opinion, of volatility on Sunday night, and that will be when the Shanghai Composite Stock Exchange opens. Folks then will see the trade what the currency is doing.”
Payne says that the value of China’s currency is not a free-flowing entity, it is intentionally placed by the government. In times of significant concern like today, he says China’s likely to ease its currency. “Which means they print more money, they bring it down versus the dollar, and that essentially is bearish for U.S. commodity prices,” he said.
Payne adds that current market conditions have provided a “great opportunity” for those who are considering borrowing money. “We’re not historically low on interest rates, but we’re getting darn near close. That’s where the safe-haven money is going. At some point, though, it will loosen and I anticipate the gold markets to be a good opportunity."
“The problem with the corn and soybean markets, and wheat to an extent, is the carry costs are high," he said. "If you plan on holding bushels for the next few months or you have basis contracts written that you want to roll, I would roll soon. I would not wait until the end of February. This is a good time to do it.”