Summary: Equity markets led by Wall Street dropped sharply amid continued fear on the economic impact of the Covid-19 spread. Investors shrugged off the Federal Reserve’s emergency rate cut on Sunday. The risk aversion spread to FX where the Yen advanced 1.8% against the US Dollar, USD/JPY dropping to 105.90 from 107.95 yesterday. Risk FX leader the Australian Dollar plunged to an overnight and November 2008 low at 0.60785 before climbing in late NY to 0.6105, for a loss of 1%. The Euro finished up 0.75% to 1.1170 (1.1100) after jumping to 1.12213. Sterling slumped to 1.22022, its weakest since October before recovering to close at 1.2263 from 1.2274 yesterday. Against the Canadian Loonie, the US Dollar climbed to 1.4000, touching 1.40178, the strongest since December 2015 as Brent Crude Oil prices plunged 12% (USD 29.75). The Dollar Index (USD/DXY) lost 0.73% to 98.028 from 98.691. Emerging Market currencies plummeted. The South African Rand dropped 3.35% (USD/ZAR to 16.68 from 16.24).
In late New York trade, the DOW was down 11.5% to 20,485 (23,015). The S&P 500 lost 10.5% to 2,405 (2,703 yesterday). US Bond yields fell sharply. The benchmark 10-year rate was down 24 basis points to 0.72%. Two-year US bond yields slipped 13 basis points lower to 0.36%. Germany’s 10-year Bund yield climbed 8 basis points to -0.47%. Japanese 10-year JGB yielded +0.005% (-0.01%).
China’s Industrial Production slumped -13.5% missing forecasts at -3.0% while Retail Sales dropped to -20.5% against expectations of -4.0%. China’s Fixed Asset Investment plunged -24.5% versus forecasts of -2.0%. US Empire State Manufacturing Index plunged to -21.5 widely missing expectations of +5.1.
On the Lookout: Stimulus efforts around the globe increased after the US Fed and the RBNZ cut rates. China, Australia, Europe, and others added further measures. Which further increased investor alarm about the rapid spread of Covid-19 and how it has weakened global economic growth. China’s trifecta of primary economic data released yesterday all tumbled in January and February. The US Empire State Manufacturing Index plunged to its weakest since 2009.
While all the focus is on the spread of the Coronavirus, economic data will come under scrutiny in the next few weeks to see just how bad the global economies are affected by the pandemic.
Today sees UK Employment data, German and Eurozone ZEW Economic Sentiment Index, US Capacity Utilization, Industrial Production and JOLTS Job Openings.
Trading Perspective: The risk-off sentiment weighed on risk currencies, the Aussie, Canadian Dollar, Kiwi and EMS. Against the majors the US Dollar retreated. The key US 10-year bond yield dropped 24 basis points while its global rivals either climbed or retreated to a lesser extent. This will eventually result in a lower US Dollar overall.
US economic data released yesterday saw a huge drop in the Empire State Manufacturing Index. The coronavirus impact in the U.S. has yet to reach its peak, which makes its currency even more vulnerable in the future.
FX volatility which doubled in the past few weeks, has subsided in most currencies. That said, it remains elevated.