Summary: Volatility reigned in all markets as equities tanked after the World Health Organisation described COVID-19 as a pandemic for the first time. Prior to the WHO’s comments, Britain and Italy announced they were putting aside large sums to fight the virus. The Bank of England cut its Official Bank Rate by 0.5% to 0.25% following in the Fed’s footsteps. Other global central banks, the Reserve Bank of Australia and the Bank of Canada have lowered rates in recent weeks. The British Pound, in choppy trade, initially rose to 1.29763 before dropping to 1.2820, steadying to close at 1.2840, down 0.75%. The Euro extended its decline to 1.1280 from 1.1300 as traders readied for the ECB policy meeting following 50 bp rate cuts from the Fed and BOE. Italy’s Prime Minister Giuseppe Conte said the government had earmarked USD 28.3 billion to ease the economic impact with the country nearing a recession. A favoured gauge of the Dollar’s value against a basket of foreign currencies, the Dollar Index (USD/DXY) advanced 0.11% to 96.523. The benchmark US 10-year bond yield rose 7 basis points to 0.87%. The USD/JPY pair dropped to 104.096 from its 105.45 open yesterday in volatile trade, steadying to settle at 104.40 this morning. The Australian Dollar finished at 0.6495, a touch above its 0.6485 open yesterday after see-sawing between 0.6455 and 0.6540. The rebound in Wall Streets stocks ran out of steam, equities sank after WHO Director General Tedros Adhanom Ghebreyesus announced. “We have therefore made the assessment that COVID-19 can be characterised as a pandemic.”
US Headline CPI in February rose 0.1%, matching January’s 0.1%. Core CPI rose 0.2%, also matching the previous month and forecasts of 0.2%.
On the Lookout: The main event today is the ECB policy meeting and its response to the impact of the coronavirus. The European Central Bank needs to do more than lower interest rates. ECB President Christine Lagarde said that Europe could face a 2008-like economic shock if European government do not provide a coordinated response. These comments could see some big announcements made today.
Before that, US President Trump is scheduled to speak on the coronavirus in Washington DC (12 noon, Sydney time). Data releases today see Japanese PPI and BSI Manufacturing Index. Australia releases its M1 Inflation Expectations. Eurozone Industrial Production follows. Finally, the US reports its Headline and Core PPI. The ECB rate decision, Monetary Policy Statement and Press Conference round up today’s events and data reports.
Trading Perspective: “My, my, hey, hey volatility is here to stay.” The tune to Neil Young’s 1978 tune rings loud in today’s market. It’s COVID-19 versus the global government and central bank responses to battler the spread of the disease. Stocks fell into bearish territory. FX continued its choppy trade while the Dollar steadied. Overnight bond yields steadied. The US 10-year bond yield closed at 0.87%. Global rival rates were also up, but not to the extent of the US climb. This has supported the Dollar. However, its too premature to call a base to the Dollar.