12th March 2020 - Focus on Trump's address as panic returns



Good morning


OVERNIGHT DATA AND HEADLINES


• The World Health Organization described the coronavirus outbreak as a pandemic for the first time on Wednesday, and Britain and Italy showed growing concern about the economic impact by announcing multi-billion-dollar war chests to fight the disease. The United States also said it was considering new steps to battle the virus that emerged in China in December and has spread around the world, halting industry, grounding flights, closing schools and forcing events to be postponed. There are now more than 118,000 infections in 114 countries and 4,291 people have died of the virus, with the numbers expected to climb. The number of cases outside China rose 13-fold in the past two weeks, and the number of countries affected tripled, with Iran and Italy the worst-hit countries in the Middle East and Europe. There have been 354 deaths in Iran and 827 in Italy.

• Britain unveiled a 30 billion-pound ($39 billion) stimulus plan to help the economy as it faces the risk of a coronavirus recession, hours after the Bank of England slashed interest rates in a double-barrelled response to the crisis. Prime Minister Boris Johnson's new finance minister, Rishi Sunak, announced the higher spending as part of a much larger debt-fuelled five-year investment surge that budget forecasters said represented the biggest stimulus splurge since 1992. The cost of helping businesses and individuals was around 7 billion pounds while 5 billion pounds would go to the health service and other departments fighting the spread of the virus. A further 18 billion pounds would go toward additional stimulus.

• Against a backdrop of plunging global stock markets and signs of a nascent slowdown in Britain, the Bank of England cut its key rate by half a percentage point to 0.25% early on Wednesday, echoing last week's emergency move by the U.S. Federal Reserve.

• U.S. consumer prices unexpectedly rose in February but could drop in the months ahead as the coronavirus outbreak depresses demand for some goods and services, outweighing price increases related to shortages caused by disruptions to the supply chain. The Labor Department said its consumer price index increased 0.1% last month, matching January's gain, as rising food and accommodation costs offset cheaper gasoline. In the 12 months through February, the CPI rose 2.3%. That followed a 2.5% jump in January, which was the biggest year-on-year gain since October 2018. Economists polled by Reuters had forecast the CPI would be unchanged in February and rise 2.2% on a year-on-year basis. Excluding the volatile food and energy components, the CPI increased 0.2% in February, matching the gain in January. The so-called core CPI was up by an unrounded 0.2229% last month. Underlying inflation in February was boosted by rising prices for apparel, personal care, health care, used cars and trucks, and education. Airline fares and recreation prices fell. In the 12 months through February, the core CPI increased 2.4%, after advancing by 2.3% for four consecutive months.

• The USD strengthened and global equities markets slid again, with Wall Street sharply lower, as the previous day's high hopes of government stimulus to tackle the coronavirus soured on the hard reality of still little action. The strong stock rally petered out in Europe, even after the Bank of England joined other central banks in cutting interest rates, as investors pondered how much monetary and fiscal stimulus can dampen the epidemic's economic toll.

• U.S. stock indexes tumbled as investors worried over the absence of immediate measures from President Donald Trump's administration to counter the economic fallout from the coronavirus outbreak. Dow Jones fell 5.57% at 23,625, the S&P 500 down 4.64% at 2,748, Nasdaq down 4.06% at 8,032.

CURRENCIES


• The USD resumed its climb higher, the DXY index bouncing up from a 96.00 low and up towards 96.60.

• USDJPY was shaken to and fro, trading between 104.30 / 105.30 overnight.

• EUR reversed all its gains made overnight, dropping from 1.1350 down to 1.1260.

• GBP took hit lower, dropping from 1.2975 down to 1.2800 lows.

• AUD reversed all its steady gains above 0.6500, turning back from 0.6536 to 0.6480 lows.

• NZD followed AUD lower from 0.6342 down to 0.6265.

• AUDEUR struggled to make any promising gains through 0.5800, hitting a 0.5785 high but reversing to 0.5750 lows.

• AUDNZD remained under pressure, holding above 1.0300 support and trading up towards 1.0350.


TREASURIES


• U.S. Treasury yields rose in choppy trading despite losses in stocks that deepened after the World Health Organization classified the coronavirus outbreak as a pandemic.

• The 10-year note yield was last at 0.87%, up from 0.752% at Tuesday's close. 2-year Treasury yields were trading up at 0.525%, having fallen down to a 0.416% low earlier in the session.

• The yield curve between three-month bills and 10-year notes steepened as far as 42 basis points, after briefly inverting on Monday.


COMMODITIES

• Gold prices fell after rising as much as 1.3% earlier in the session to $1,670, spot gold lower 0.73% at $1,637 per ounce.

• Chinese iron ore futures ended flat after a volatile session, as hopes for an improvement in demand were offset by worries over the rapid global spread of the coronavirus. Industry benchmark 62% iron ore's spot price rebounded after a two-day decline, settling at $90.80 a tonne.

• Copper slipped 0.7% to end at $5,529 a tonne after touching a three-year low of $5,433 on Monday. LME aluminium dropped 1.3% to close at $1,675 a tonne.

• Oil prices fell after Saudi Arabia and the United Arab Emirates announced plans to boost production capacity and OPEC and the U.S. Energy Information Administration (EIA) slashed oil demand forecasts because of the coronavirus outbreak. Brent crude was down $1.01, or 2.7%, at $36.21 per barrel while U.S. West Texas Intermediate (WTI) crude was off $1.05 or 3% at $33.31.

ECONOMIC CALENDAR TODAY


• Australian March MI inflation expectations (last 4.0%). Surprisingly firm despite persistent sub-2% CPI inflation.

• Eur Jan industrial production (last –2.1%, forecast 1.2%). To come under pressure from external & domestic forces.

• ECB policy decision, deposit rate –0.50% –0.60% –0.60% Deposit rate cut more about signalling than its effect.

• US - Feb PPI 0.5% 0.2% – Upstream price pressures absent.

• US - Initial jobless claims 216k – Very low.


AUD THOUGHTS


AUD had a minor recovery up towards 0.6536 highs overnight however another bout of risk-off sentiment saw AUD price action lower and down at 0.6480/85 supports.

investors are waiting on the sidelines for policy moves from both the Fed and RBA to counter the negative economic impact of COVID-19. Rates markets are pricing in a 25bps RBA cut on April 7 but nothing after that.

The RBA said QE would be considered if the cash rate fell to 25bps, but it might hold off on unconventional policy on hopes that fiscal stimulus will be enough to shield Australia's economy from the virus impacts.

Investors' uncertainty about QE could be underpinning AUD for the moment, and Fed expectations are likely factoring in as well. Price rallies in fed funds futures suggest a 75bps cut for March 18.

Rates markets are also pricing in a small probability of a 100bps cut. If the Fed surprises with a 100bps cut, the USD should fall. AUD is then likely to test key 0.6770/80 resistance. Should the opposite eventuate, AUD could retest the 0.6300/15 area.

The greater point is that the US’s capacity to cut rates – and undo the US’s rate advantage – has always remained far greater than other economies, putting the USD at a disadvantage as the Fed’s monetary policy would be brought in to carry most of the burden.


For the AUD, to remain under pressure just below the 0.6500 handle. In the absence of any major news (hardly unlikely in this market), support to hold around 0.6480 with any demand to see selling interest at 0.6550.


TECHNICAL OUTLOOK


AUD investors side lined as risks are weighed - risk signals somewhat mixed as stocks fall but US Treasury yields buoyed. Investors awaiting fiscal policy moves from US for next cues.

AUD sinks again, slide sees it at 23.6% technical support (0.6484) once again (similar to yesterday).

Daily RSI’s continue downwards and remain open up for continued selling. Downside risk remains, minor support sits in the 0.6450/55 area.

Immediate resistance coming at 0.6558, if broken sets up 0.6600 resistance.




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