- The spread of the coronavirus outside of China has intensified global concerns regarding a pandemic, notably with the spread of the virus in South Korea, Iran and Italy.
- The spread in Italy, and the growing potential for a spread throughout Europe triggered far more aggressive, capitulation like activity across global financial markets, which are completely focused on the coronavirus and its potential impact on the global economy.
- Last week saw significant damage to global equity averages, not only neutralising intermediate-term bullish forces, but switching the intermediate-term outlook to bearish from a technical analysis perspective.
- Safe haven assets, such as bonds, continue to surge higher, reflecting a flight to quality with the US 10-year yield at an all-time low.
- Interest rate futures for the US are fully pricing in at least a 25bp rate cut for March and likely a 50bp cut from the Federal Reserve at their next meeting in mid-March, whilst the European Central Bank and Bank of Japan are not likely to cut rates to more negative!
- In the Forex space, the Japanese Yen has resumed its position as the safe haven King, with USDJPY plunging lower, whilst the Euro has also benefited against the US Dollar.
- This US Dollar selloff within G3 (USD, JPY, EUR) has likely reflected the aforementioned anticipation of a cut in interest rates from the Federal Open Market Committee in March (maybe before).
- The “commodity” or “risk” currencies, the Australian, New Zealand and Canadian Dollars continue to plunge, with the antipodean currencies at multi-decade lows against the US Dollar.
- In the commodity space, oil has plunged lower through $50/ barrel as global economic slowdown concerns have impacted, whilst the copper price remains vulnerable to further decline.
- Gold initially surged to the upside, but the Gold price has notably retraced, with rumoured profit-taking selling, to pay for margin calls on loss making positions elsewhere (notably on stocks).
- Data has been largely side-swiped over the past 1-2 weeks, with the emphasis on the coronavirus and market panic and capitulation, BUT on Saturday the release of VERY negative Chinese Purchasing Managers Index (PMI) data has underscored the threat to the global economy.
Key this week
- Data regarding the international spread of and deaths from the coronavirus will remain the market focus into this week, and likely through March.
- Central Bank activity – Tuesday: Reserve Bank of Australia (RBA) interest rate decision; Wednesday: Bank of Canada (BoC) interest rate decision. No changes are expected, but the market cannot rule out unexpected rate cuts.
- On the political front, Tuesday is Super Tuesday, the US Democratic Presidential Primaries
- There is an OPEC Meeting Thursday and Friday, where larger output cuts are expected, given the recent plunge in the oil price.
- Data has become almost irrelevant up until now, BUT as with the Chinese PMI data from the weekend, we will soon start to see the impact of the spread of the coronavirus in forward-looking data, notably the global PMI data on Monday and Wednesday.
- Friday also brings both US and the Canadian Employment reports.
|Date||Key Macroeconomic Events|
|02/03/20||Global Markit Manufacturing PMI; US ISM Manufacturing PMI|
|03/03/20||RBA interest rate decision; Eurozone CPI and Unemployment; Super Tuesday, the US Democratic Presidential Primaries|
|04/03/20||Australian GDP; BoC interest rate decision; Global Markit Services PMI; US ISM Non-Manufacturing PMI|
|06/03/20||OPEC Meeting; US Employment report; Canadian Employment report|