OVERNIGHT DATA AND HEADLINES
• Global equity markets tumbled as the death toll from the coronavirus outbreak in China hit 170, sending a closely watched bond indicator to invert and oil prices sharply lower on concerns about its impact on China’s economy. U.S. stocks fell as the coronavirus epidemic raised fears of a further hit to China's economy - Dow Jones down 0.42% at 28,613, S&P 500 fell 0.47% to 3,258 and the Nasdaq fell 0.45% to 9,233.
• The U.S. economy missed the Trump administration's 3% growth target for a second straight year, posting its slowest annual growth in three years in 2019 as the slump in business investment deepened amid damaging trade tensions. The 2.3% expansion last year suggested the White House and Republicans' massive $1.5 trillion tax cut package, which President Donald Trump had predicted would lift growth above 3%, had provided the economy only a temporary boost. GDP increased at a 2.1% annualized rate in the fourth quarter, matching the third-quarter pace, also as lower borrowing costs encouraged purchases of houses. Excluding trade, inventories and government spending, the economy grew at a 1.4% rate in the fourth quarter, the slowest in four years. This measure of domestic demand rose at a 2.3% pace in the third quarter.
• The Bank of England kept interest rates steady at Governor Mark Carney's final policy meeting as it saw signs of a post-election pick-up in growth which weakened the case for immediate action to help the lacklustre economy. The MPC again split 7-2 in favour of keeping Bank Rate at 0.75%, with external members Michael Saunders and Jonathan Haskel voting for a cut. The BoE dropped its message that future rate hikes would be "limited and gradual", guidance that Carney said dated back to when a more rapid pace of rate hikes might have looked likely.
• Euro zone economic sentiment jumped as confidence among manufacturers rose while unemployment was at its lowest level in more than a decade, data showed on Thursday, but the mood may quickly turn sour as fears over the coronavirus epidemic mount. A European Commission's monthly survey said economic sentiment in the 19 countries sharing the euro rose to 102.8 points in January from 101.3 in December, well above the average forecast of 101.8 points in a Reuters poll of economists. The improvement was driven by higher confidence in industry, as factory managers were more upbeat on their production expectations and their stocks of finished products.
• The U.S. DXY hit fresh session lows overnight, falling 0.15% from 98.07 down to 97.79.
• The Japanese yen and the Swiss franc improved but gave up gains late in the session – JPY last up 0.17% to 108.79 while the Swiss franc up 0.37% to 0.9695.
• EUR gained ground, jumping up from 1.1005 towards 1.1040 highs.
• GBP jumped higher from 1.2976 lows up towards 1.3110 highs.
• AUD remained on the defensive yet again, unable to make any progress higher and falling 0.62% from 0.6745 to a 0.6697 low.
• NZD fell in tandem, down 0.66% from 0.6510 to 0.6478.
• AUDNZD was caught in a range for the most part, trading between 1.0330 and 1.0355.
• AUDEUR tumbled further, down 0.82% from 0.6120 high to 0.6068 lows.
• U.S. Treasury yields dipped to 3 month lows and a closely watched part of the yield curve was briefly inverted as concerns about the economic impact of a virus emanating in China weighed.
• Benchmark 10-year note yields fell two basis points to 1.566%. The yields got as low as 1.534% overnight, the lowest since Oct. 9.
• The closely watched yield curve between three-month bills and 10-year notes inverted for the second day this week, a bearish signal for the economy. Other shorter-dated parts of the yield curve including the two-year and five-year portion were also inverted.
• Thirty-year bond yields fell to 2.01%. They are approaching an all-time low of 1.905% set in August.
• The benchmark 10-year German Bund yield fell to a three-month low at -0.41%. French and Dutch 10-year yields hit their lowest levels since mid-October and the yields on 10-year Italian bonds sold at an auction fell to their lowest since September.
• Gold prices held firm on concerns of a slowdown in global growth due to virus outbreak in China - Spot gold was up 0.3% at $1,580.65 per ounce after rising 0.7% in the last session.
• Copper prices sank to five-month lows as funds sold on expectations of slowing demand in China. Benchmark LME copper closed 1% lower at $5,587.5 a tonne.
• Oil prices fell 2% to the lowest in three months - Brent crude was down $1.52, or 2.54%, to $58.29 a barrel. WTI crude settled $1.19 lower (2.23%) at $52.14 a barrel.
ECONOMIC DATA TODAY
• Australian Economic data today – December private sector credit %mth (last 0.1%, forecast 0.2%). Weakness in 2019 H2. Housing rebound a plus for 2020.
• Australian Q4 PPI %qtr 0.4. Some upstream pressure from lower AUD but not much else.
• China - Jan NBS manufacturing PMI (last 50.2, forecast 50.0). Soft global growth and tariffs weighing. Jan NBS services PMI 53.5 53.0 – Improved investment climate to help services in time.
• China - Dec industrial production %mth (last –1.0, forecast 0.7). Manufacturing to remain weak for some time.
• Europe - Q4 GDP %qtr (last 0.2, forecast 0.2). Only a headline read. Growth currently below trend.
• Europe - Jan CPI %yr (last 1.3, forecast 1.4) – Inflation pulse has improved, but still well below target.
• UK Jan GfK consumer sentiment –11 –9 – Outlook highly uncertain for UK economy.
After a two-day consolidation during the previous two sessions, AUD broke lower falling through 0.6700 support to a brief 0.6697 low.
The coronavirus contagion remains a key factor in driving AUD down as the economic impact is likely to be detrimental to Australia, which is already suffering the impacts of the bush fires.
A huge drop in Q4 Australian export prices to -5.2% from +1.3% is likely to increase concerns that inflation will remain below the RBA's target. Australian yields fell again, which widened Australian-U.S. yield spreads. The export prices and yield factors slightly increased the probability for RBA cuts. Commodity prices also give AUD longs reason for concern.
All eyes will remain firmly fixed for further news as the virus impact looks set to dominate market proceedings for the time being.
AUD shorts likely to test 2019's low as risk remains soured – AUD adds to overnight fall in NY as spreading virus sinks risk.
Bear trend resumes after brief two-day consolidation phase - sell-offs in stocks, copper, oil, AUD/JPY and AU yields weigh down AUD.
0.6700 low set but only a meagre bounce ensues, suggests bears are confident. Test of 2019 low likely, break of that low is possible.
Daily, monthly RSIs imply bear momentum remains, Fibonacci now acts as resistance (0.6754). All factors suggest high probability of test of 2019's 0.6670 low.