OVERNIGHT DATA AND HEADLINES
• Markets reeled on Monday, with stocks on Wall Street and the price of Brent crude tumbling more than 10%, as the Federal Reserve's second emergency rate cut in as many weeks to blunt the economic impact of the coronavirus failed to calm fears of a prolonged recession. The magnitude of the Fed's rate move and other measures on Sunday, backed by global central banks, unnerved investors as the breakneck spread of the outbreak - all but shutting down some countries - outweighed the policy response to ensure liquidity in markets.
• U.S. stock indexes plunged over 12%, as investors dumped risky assets for cash after the Federal Reserve's drastic move to cut interest rates to near zero amplified worries over the extent of damage from the coronavirus pandemic. Dow Jones was down 12.10% at 20,362, S&P 500 down 11.13% at 2,409, Nasdaq down 11.00% at 7,090.
• European shares plummeted to 2012 lows on Monday as the coronavirus pandemic raged through Europe, with dramatic monetary easing by global central banks failing to reassure investors about its growing economic damage.
• Australia's benchmark stock index dove the most since 1987 yesterday as investors worried that a raft of stimulus measures. The benchmark S&P/ASX 200 index sunk 9.7%, or 537 points, to 5,002.00 at the close of trade, as the sell-off worsened in the final minutes of trading.
• US Empire Manufacturing for March fell to -21.5, well short of expectations of +3.0.
• Canadian Existing Home Sales rose by 5.9% to easily beat expectations of +0.5%.
• The USD gained, DXY index jumping up from 97.44 up towards 98.44 however closing softer at 98.04.
• The safe-haven JPY saw an improvement towards 105.13 from 107.06.
• EUR jumped from 1.1105 towards 1.1240, back down to 1.1092 and up to close at 1.1175.
• China’s CNY strengthened as China's central bank kept borrowing cost on its medium term loans steady. In late NY the CNY fell from 7.0230 towards 6.9915.
• NZD fell after an emergency rate cut by the country's central bank, NZD falling towards low 0.6000’s (closed 0.6030).
• AUD saw overnight gains towards 0.6184 however fell once again to a 0.6078 low.
• AUDEUR saw another round of selling interest, this time down towards 0.5450 lows from 0.5540 highs the previous day.
• AUDNZD sank lower and within a whisker of breaching the all-important 1.0000 level. AUDNZD low overnight 1.0017.
• U.S. government bonds yields fell after the Federal Reserve announced that it would slash interest rates to near zero, but the moves were modest as investors worried that Treasuries would sell off as they did last week.
• The benchmark 10-year Treasury yield fell from 1.002% to 0.640% yesterday, back up towards 0.83% and closed at 0.753%.
• The two-year yield fell from 0.53% to 0.27% lows and managed a recovery back up at 0.375%.
• Higher-rated European debt yields also rose, with Germany's 10-year benchmark up 13 bps to -0.45%.
• Platinum plunged nearly 27% to its weakest level since 2002, while gold dived over 5% as investors unloaded precious metals in exchange for cash after a second emergency U.S. rate cut failed to quell coronavirus fears across markets.
• Palladium dropped 11% to $1,609.45 per ounce, silver slumped 12.5% to $12.84 after touching $11.76, a level last seen in 2009.
• Gold broke below the 200-day moving average, Spot gold falling to $1,453 lows before recovering up towards $1,503 per ounce.
• Shanghai steel futures hit their highest in nearly two months on Monday on signs of a recovery in demand, but ended well off the day's peaks after China released grim industrial output data.
• Copper prices slid to the lowest since November 2016 on worries that lockdowns in Europe and the United States to tackle the coronavirus would further erode metals demand. Three-month LME copper fell 3.1% to $5,290.50 a tonne, the weakest since November 2016.
• Oil prices fell below $30 a barrel - Brent crude was down $3.75, or 11.1%, to $30.10 a barrel (earlier fell to $29.52 a barrel, its lowest since January 2016). U.S. West Texas Intermediate (WTI) crude fell $2.45, or 7.7%, to $29.28 a barrel.
ECONOMIC DATA TODAY
• Australia - Q1 Aus Chamber-Westpac survey 56.1 – A disjointed start to the year for the manufacturing sector.
• RBA minutes – Colour around likely further response to COVID-19.
• Europe - Mar ZEW survey of expectations 10.4 – Sentiment to be shocked lower.
• UK - Jan ILO unemployment rate (last 3.8%, forecast 3.8%). Labour remains strong despite uncertainties faced by UK.
• US - Feb retail sales (last 0.3%, forecast 0.2%). Precautionary spending to offset late-month caution.
• US - Feb industrial production (last –0.3%, forecast 0.4%). Manufacturing to be hit in coming months by COVID spread. Jan business inventories (last 0.1%, forecast –0.1%). Likely to be run down into Q2. Jan JOLTS job openings – COVID effect likely two months away.
• US - Mar NAHB housing market index – Home building has strong economic support; COVID big risk.
There was no letting up in AUD selling interest overnight, AUD reaching a new fresh low at 0.6078 and selling interest also seen against other currency pairs (JPY, EUR, NZD) with fresh lows also recorded.
The USD’s rally from its March 9th low (94.65) has been fierce and driven largely by funding strains. However, it seems to have also paused at a potentially key technical level. The next move most likely depends on risk sentiment, particularly regarding the funding issues that have vexed financial markets.
Liquidity injections from global central banks have, at least temporarily, alleviated some dollar funding issues. Should those concerns further diminish, the downside risks for the USD should grow as positions get unwound and provide some hope for an AUD rebound.
Despite the new measures from the Fed and other central banks, traders are generally critical of the actions of monetary policymakers of late, thinking they are ill-suited to drive demand during ‘enforced social distancing’. But that sometimes misses the point that private financial decisions made today are taken with a view to also benefitting from the post-corona virus environment. The Fed may thus influence those decisions – in a positive way - by shaping the image of what the economy would look like after the crisis. And if you’re a fan of fiscal policy instead, note that by keeping public borrowing rates low, the Fed removes the budgetary roadblocks to fiscal stimulus too. Evidence that the Fed’s measures are ‘working’ won’t be found in the equity markets this morning – which are much lower. With all central bank policy rates already near or going to zero (and below), yield advantages have evaporated as expected, largely to the relative detriment of previously high yielders (the AUD, NZD, CAD, USD). What might drive FX next is perceptions of who gets out alive first. That may depend on who’s got the most effective public and private administration to flatten the virus caseload curve.
Today we have the RBA minutes which will provide further information to RBA mindset and highlight which actions they may take in light of Coronavirus fears.
For the AUD, the path of least resistance lies towards downside risks with the 0.6000/10 attractive levels for markets to achieve.
Wild AUD prices swings take hold after moves, new 12-yr low set. Bears halted at 0.6078.
USD demand abates a bit, some USD sales seen as equities bounce. AUD bounces above 0.6165 before pulling back near 0.6100 late in the day
Investors digesting central bank moves, USD sentiment is key. For now, the downside looks to be the path of least resistance for AUD.
Techs are bearish but RSIs deeply oversold, risk of a short squeeze exists. If no squeeze takes hold soon AUD bears will target 0.6000/10