OVERNIGHT DATA AND HEADLINES
• Global equity markets tumbled and the USD slid as the number of coronavirus cases outside China mounted rapidly, leading California to declare an emergency and HSBC in London to send more than 100 staff home.
• U.S. stock indexes fell sharply - Dow Jones was down 3.80% at 26,060, S&P 500 3.74% at 3,013 and the Nasdaq down 3.34% at 8,650.
• The number of Americans filing for unemployment benefits fell last week, suggesting the labour market was on solid footing despite the coronavirus outbreak. Initial claims for state unemployment benefits slipped 3,000 to a seasonally adjusted 216,000 for the week ended Feb. 29. Jobless claims are the most timely labour market indicator and are being closely monitored for clues on the coronavirus' impact on the economy. Economists polled by Reuters had forecast claims would fall to 215,000 in the latest week.
• The number of people who have the novel coronavirus in New York state doubled to 22 on Thursday following an increase in testing, as Tennessee and the city of San Francisco reported cases of the fast-spreading illness for the first time. New York Governor Andrew Cuomo told a news conference testing expanded after the federal government approved its use of additional laboratories, boosting capacity. He said more testing would inevitably identify more cases. The U.S. Senate on Thursday passed an $8.3 billion bill to combat the outbreak 96-1, a day after the House of Representatives overwhelmingly approved it. The bill will now go to President Donald Trump for his signature. More than $3 billion of the approved funds would be devoted to research and development of coronavirus vaccines, test kits and treatments. There are currently no approved vaccines or treatments for the illness that began in China and has infected more than 95,000 people in some 80 countries and territories.
• The U.S. dollar slipped to a fresh eight-week low as expectations mounted the U.S. Federal Reserve will cut interest rates further. DXY index was about 0.5% lower at 96.86.
• EUR found buying interest, increasing nearly 100 points from 1.1120 up towards 1.1216 highs.
• GBP also followed EUR lead, improving from 1.2867 to 1.2950.
• USDJPY saw renewed strength, falling to a 106.20 low (strongest level in 2020).
• China's yuan eased off six-week highs - spot CNY surged to the highest since late January (6.9200) in the previous session but ended weaker at 6.9366.
• AUD edged higher to a 0.6637 high overnight but sold off towards 0.6582 lows. Opens this morning at 0.6600.
• NZD found a 0.6319 high but found selling interest down towards 0.6280 lows.
• AUDNZD encountered selling interest too tempting after visiting highs at 1.0530, falling back down towards 1.0460.
• AUDEUR also sold off in spectacular fashion, down from 0.5960 towards 0.5870.
• U.S. Treasuries rallied as the market weighed the implications of increasing coronavirus quarantines on the global economy.
• The 10-year Treasury yield has fallen in 10 of the last 11 sessions, slipping below 1% once again overnight to 0.899% but closing up higher at 0.932%.
• Yields on two-year notes fell to their lowest in nearly four years, last at 0.554% lows to close up at 0.591%.
• Yields on U.S. 30-year bonds were at 1.585%, down from 1.636% on Wednesday. They touched an all-time trough of 1.507% on Tuesday.
• Germany's benchmark 10-year Bund yield fell to a new six-month low, falling to -0.68% - a six-month low. Two-year German yields also hit a six-month low, falling to -0.86%.
• Gold climbed over 1% to a more than one-week high as worries over the global spread of the coronavirus spurred more safe-haven flows. Spot gold gained 2.23% to $1,672 per ounce from $1,636 per ounce yesterday.
• Shanghai steel futures closed higher, boosted by hopes of more stimulus by China to support its economy impacted by the coronavirus outbreak, although gains were capped on caution over the country's record-high inventories. Industry benchmark 62% iron ore's spot price hit a fresh one-week high of $90 a tonne.
• Prices of most industrial metals climbed, supported by expectations of further measures from central banks and governments to shore up economic growth and demand weakened by the spread of the coronavirus. Copper dipped 0.2% to $5,674 a tonne in closing rings.
• Oil prices edged lower as the coronavirus epidemic showed no signs of slowing, with deaths mounting globally. Brent crude fell by 34 cents, (0.7%) to $50.79 a barrel. U.S. WTI was down 17 cents (0.4%) at $46.61.
ECONOMIC DATA TODAY
• Australian - January retail trade (last –0.5%, forecast 0.0%). Weak trend, timing of sales, and bushfires to see a further fall.
• US - Jan trade balance US$bn (last –48.9, forecast –48.8). COVID-19 to affect trade from Feb.
• US - Feb non–farm payrolls (last 225k, forecast 195k). Employment growth to soften in 2020...
• US - Feb unemployment rate (last 3.6%, forecast 3.5%). Unemployment rate to remain at lows.
• Fedspeak – Williams, Kashkari and Kaplan speak during Asian session. Various speakers at Shadow Committee Event in New York
Risk aversion returned to the markets overnight forcing the hand of an AUD selloff back towards 0.6580 lows, after a near visit and potential of breaking the downward trend from 1st January highs (0.6637 overnight).
A continuation in the COVID-19's spread and economic fears took another toll with further cases and deaths reported with growth projections being lowered. As a result, another selloff in global equity markets, bond yields, the USD and USDJPY strength was enough to see AUD fall.
The USD continues to track treasury yields lower as expectations of further Fed easing (75bp by year end starting with 25bp or 50bp at the March 18 meeting) see downward pressure, with other major central banks having far less room to cut.
The dollar index, dominated by EUR and USD/JPY, is at two month lows and at risk of reversing its uptrend from 2018 if it falls through December’s lows. U.S. economic data has had no impact on tumbling Treasury yields, as 10-year yields have dived back toward Tuesday’s record low.
Today we have Australian Jan retail trade data to digest at 11.30am. The Dec retail report was a mixed bag with a sharper than expected pull-back in the Dec month but a better than expected wash-up for Q4 volumes. We are likely to see some impact from bushfires and associated smoke pollution which affected Sydney and Melbourne. On balance, expect retail sales to show a flat to possible decline in Jan 2020.
Tonight’s non-farm payrolls jobs report probably won’t have much impact if anywhere near forecast given the obsession with virus news.
For the AUD, looking for some stability around current levels to remain. Technicals are on the verge of breaking higher suggesting a test towards 0.6640/60 however the greater Coronavirus fears and risk related selling may force AUD back lower to test low 0.6500’s.
A great weekend to you.
Risk trades weigh on the AUD but longs don't panic. AUD heavy in early NY as virus concerns drive risk-off trade.
Selloff saw AUD down at the 10 day moving average support, only a small bounce is seen towards 0.6595 late in the session.
AUD hemmed-in between 10-DMA & 21-DMA (0.6640), consolidation persists.
Longs not panicking yet, AU-US spreads tighten & more Fed cuts likely coming. Bear trend from December high intact (now at 0.6620) but still vulnerable to break.