ASX200 correction to continue

Post this morning’s FOMC meeting, the focus for traders in the Asian session has been on virus headlines and the trickle of economic reports that attempt to assess the impact of the virus on the Australian economy.

After declining to characterise the coronavirus a global health emergency last week, the World Health Organisation (WHO) will meet again today (11.15 am NY time). Following reports this morning of a big increase in the number of cases and another 37 deaths (to 169), the pressure is building on the WHO to label the spread of the coronavirus a global crisis.

In the initial instance, reclassification would probably result in a selloff in risk assets, including the ASX 200. However, because reclassification would result in more resources being utilized, on top of those measures already undertaken by Chinese authorities, the downside impact of reclassification is likely to be limited.

The economic impact on the Australian economy is also likely to be limited - a modest hit to GDP in 2020 due to a reduction in the number of visitors from China. Keeping in mind Chinese visitors account for ~16% of international visitors to Australia and 27% of total visitor expenditure.

Not good news for tourism-related stocks such as Qantas and Flight Centre already under pressure following the recent bushfires. However, at an index level, we retain our call from last week here for a pullback of approximately 3-5% in the ASX200 before the uptrend resumes. This would see the ASX200 fall and then bounce from the support coming from previous highs 6900/6850 area.

In summary, based on the technical and macro picture outlined above, a dip towards the 6900/6850 support zone would present a buying opportunity in anticipation of the next leg higher towards 7300. Only a break and close below 6800 would cause us to reassess the potential for the uptrend to resume.

Source Tradingview. The figures stated areas of the 30th of January 2020. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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