Collinson FX: March 4, 2020 - Markets crash back into negative
by Collinson FX 3 Mar 2020 13:35 PST
4 March 2020
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Collinson FX: March 4, 2020 - Markets rebound
The Federal Reserve announced a surprising emergency rate cut of 0.5% to markets, two weeks before the Fed’s scheduled meeting. This reflects the serious nature of the ‘coronavirus crises’ and the impact on markets, as perceived by the Central bank. This emergency action has not happened since the Global Financial Crises in 2008. This was designed to stimulate damaged economies, by lowering interest rates to record levels, but may have succeeded in creating more panic and uncertainty? The initial reaction was a spike in US equity markets, following the massive gains from Mondays open, as expected. The realisation of the sheer size and scope of the problem then sent equities into reverse, as US share markets crashed into negative territory.
The massive rate cut had immediate effect on the Dollar, with the EUR jumping to 1.1150, while the Yen spiked to 107.75. The Fed’s actions was co-ordinated and followed a G7 Finance Ministers meeting, while the RBA cut rates by 0.25%, in their scheduled meeting. The RBA is running out of options, as the rate cut, was to a record low of 0.5%. The Fed is the only Central Bank with ‘options’ as other leading Central banks are running at close to zero or even negative rates, as in the case of the ECB and BoJ.
The Fed’s surprise action boosted the flagging, trade exposed commodity currencies. The NZD looked to regain 0.6300, while the AUD broke back above 0.6600, despite the RBA’s action.
Markets now have further monetary stimulus to add to the fiscal stimulus, many countries are employing. The situation is critical and the emergency actions have triggered signs of further uncertainties in markets. The Feds action should boost equities and drive currencies, but despite the immediate plunge in the Dollar, it still holds an interest rate premium over most currencies.
Collinson FX: March 3, 2020 - Markets rebound
US equity markets rebounded aggressively to open the new week, after suffering the worse losses for a week since the GFC, despite the continued spread of the coronavirus. The spread continues in China, but at a slower rate, while global rates continue to increase. The perception may be that authorities appear to be in containment mode and gaining some kind of control. The impact of the crises is starting to manifest in economic data, with Chinese PMI data contracting, at the worst rate in history. This was expected and global economic data will also be impacted in the first quarter.
The RBA is meeting today and there has been speculation that they may cut interest rates to combat the economic impact of the coronavirus crises. This is the first Central Bank to have a scheduled meeting since equity markets collapsed, so it will be telling and probably coordinated with other Central Banks. It would probably calm markets more if the RBA resisted the temptation to cut rates, insinuating that their is no need to panic, but we shall see. The AUD hinted that the rates would hold, as the currency rebounded to 0.6530, while the NZD traded 0.6550 despite testing headwinds.
The EUR continued to trade strongly, pushing up to 1.1175, while the GBP held above 1.2800. The EUR has surprised many with it's resilience, initially explained by massive short positions closing out, but the rally continues? If the worst is over, in terms of the coronavirus crises, we may see closer attention paid to the EU/UK trade negotiations and economic data projections.
The virus remains the focus of markets.
Collinson FX: March, 2020 - In the ditch
A catastrophic week on markets, ended with the car well and truly in the ditch, if not over the cliff! This week has delivered the market verdict on the dimension of this crises. It is a major global economic crises. The uncertainty and lack of measurable impacts on national and global economies, has lead to devastation on markets for the whole week, to close out February. US and global equity markets are in meltdown, crashing into correction territory, as the Dow loses 14% in a week! US 10 year bond yields collapsed to record lows, falling to 1.14%, reflecting the flight from risk assets and demand.
Speculation over Central Bank action is rife across markets, in an effort to combat the uncertainty the crises has delivered. The coronavirus has infected people and markets but the sheer scale of the impact is not yet measurable and this is what is driving the market freefall. This complete disruption to the existing supply chain, the horrendous impact on tourism and trade and the bottom line impact on corporate earnings, are all destructive in reality. The RBA is scheduled to asses the risk and decide upon action required, while a surprise intervention by the Federal Reserve could settle, or unsettle markets further?
The impact on currencies has been murky and quixotic. The safe haven status of the Yen and CHF have been confirmed, reflecting their traditional status, but the US Dollar has been slow to attract the usual flows, as bond yields have crashed. The trade exposed currencies were always going to be held hostage to this crises, as the supply chain has been destroyed and technical support levels decimated. The next major support levels for these currencies are GFC record lows!
The RBA will be in the spotlight this week, as the first major Central Bank scheduled to deliver a rate decision, which will at the very least offer intention, if not action. There is growing speculation that the Fed may make an emergency intervention, but this maybe materialise as a public statement, telegraphing future action?
Global markets remain in turmoil and the contagion has spread from a health crises to an economic one.
Collinson FX: February 27, 2020 - Markets stabilise
European markets stabilised overnight, while US equities posted early gains, although those gains have been dissipating throughout the trading day. US Bond Yields continue to trade around record lows, reflecting weak demand and a propensity for an interest cut from the Federal Reserve. The PBoC has been working hard to stimulate the economy through monetary policy, while the Government has extended resources to business, but the virus continues to spread. The coronavirus infections also spread globally, in Iran in the Middle East and lead by Italy in Europe.
The EUR remains steady, trading 1.0870, while the GBP fell back to 1.2900. The support for the EURO has been a surprise, considering the pressures, although the lack of monetary options tend to support a floor perhaps? The Bank of England does have some ability to make further rate cuts, considering current positive interest rates, along with the Fed, RBA and RBNZ.
The spread of the coronavirus and the negative impact on the supply chain is now impacting the AUD, which has fallen below key support levels, plunging down to 0.6550. The impact of the virus on Australian economic growth, may force the RBA to make further rate cuts, thus opening up further downside in the currency. The NZD fell below 0.6300, with similar pressures driving speculation that the RBNZ may cut rates, as a response to the crises and key Business Confidence numbers out today may tell a story.
Coronavirus continues to dominate markets and extended losses will put markets into correction territory.
Collinson FX: February 25, 2020 - Coronavirus sends markets into panic
Markets look to be on the verge of panic as the 'coronavirus' spreads globally. Italy is now being hit hard, with more than 200 cases and 7 deaths, sending panic through markets. Iran and South Korea are also global hotspots and the real concern is the spread and whether there is a direct link to China? The Dow gave up all 2020 gains, crashing more than 1,000 points, while US Bond Yields and Oil Prices tank. The VIX volatility spiked nearly 10 points to 26!
China is ramping up efforts to support companies and the economy. Business, outside the infection zone, are returning to work and the Bank of China is cutting rates and running the printing machines hot. The German IFO Business Climate report was positive and the currencies remained above the fray, as the EUR held 1.0850, while the GBP traded 1.2930.
The trade exposed commodity currencies suffered losses in early market trade, with the AUD slipping below 0.6600 and the NZD testing 0.6300. The currencies have recovered in overnight trade but remain under severe threat to any market melt down.
The coronavirus remains a big threat and markets are looking to evaluate the impact on global economies.
Collinson FX: February 24, 2020 - Coronavirus triggers Safe Haven flows
Markets continued to suffer the fallout of the 'coronavirus', as the spread marches on. Chinese authorities look to be in control, but the impact of the virus on the Chinese and Global economy, is impossible to calculate. Safe Haven flows continue, with US Bond Yields and Oil prices falling, while Gold prices and Vix are on the rise. US PMI data went negative and Existing Home Sales contracted, along with the mighty Dollar.
The EUR jumped back to 1.0850, supported by some positive PMI data, while the GBP recovered to 1.2970. The fall in the reserve currency will probably be temporary, as the interest rate differential remains to attractive. Economic data will begin to reflect the impact of the coronavirus on the Chinese and Global economies.
The trade exposed commodity currencies have blown through major support levels and look set to test record lows. The AUD fell below 0.6600, for the first time since the GFC, while the NZD bounced off 0.6300. The softer reserve allowed some recovery in these commodity currencies, but they remain extremely vulnerable, heading into the new week.
The coronavirus remains the biggest macro influence on markets, but local economic data will start to reveal the impact the crises on specific national economic data.
Collinson FX: February 20, 2020 - Markets rise above virus
Markets shrugged off the threat of the 'Coronavirus', despite cases rising to 75,000 and deaths over 2,000, as markets perceive that the Chinese have it under control. The focus is now on the impact the virus is having on business and the economy. The Chinese have launched into business bailouts and cash injections and providing stimulus from the PBOC, in terms of monetary policy. The S&P and NASDAQ both hit record highs, appearing satisfied with the coronavirus crises and supported by a 9.2% rise in Building Permits. The Dollar continued to provide a safe haven alternative, in addition to attractive interest rate differentials, reflected in the Yen trading 111.10.
The EUR slipped below 108.00, while the GBP attempted to hold above 1.2900, supported by stronger than expected CPI inflation data. The rising reserve has pushed the AUD back to 0.6670, testing key technical support levels, while the NZD fell back to 0.6370.
The release of the Fed Minutes may give key insights into the Feds thoughts on the economy and the Central Banks views on action or reaction. Australian Employment data will be key to local market activity.
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