Daily Market Pulse

New quarter, same old DOW


The USD is stronger this morning as we begin the second quarter of 2020. Markets are rather quiet ahead of the North American open, but the DOW is set to fall over 700 points when the US equity markets open later this morning. This follows the end of the worst quarter on record for the DOW on record as the Coronavirus caused the equity markets to lose more than 23% of its value in the first three months of 2020. As the virus continues to intensify, with experts expecting many more cases reported in the next few weeks, analysts are expecting the DOW to fall below the lows seen earlier in March. Economic releases in the US this week are expected to show how the US economy has shut down, leaving millions of Americans unemployed. US virus cases have gone over 185,000 and the death toll is more than 4,000. As traders took risk trades off the books, the USD rallied, as traders looked for a safe-haven trade. The USD’s status as the world’s reserve currency gives it a reason for traders to buy it. US Treasury yields were lower this morning, with the 10-year note trading at 0.6254%, and the 30-year bond trading at 1.3046%. US PMI numbers are due this morning, and they are expected to fall from the previous month. Markit PMI expected at 48.0, down from 49.2, while ISM Manufacturing expected to fall to 45.0 from 50.1.


EUR/USD trading just above the overnight low, as traders move back to the USD. Virus cases seem to have stabilized in Italy, but Spain and France reported an increase in cases. Adding to the stress of the virus, France, Italy, Spain and several other euro countries are demanding “corona-bonds”, which is a debt-sharing process, while Germany and the Netherlands are among countries that remain opposed to the idea. This economic fight is weighing on the single currency. As the EUR continues to trade near overnight lows, expect a test of support and a move lower as the day progresses. 


GBP/USD is also lower this morning, as the UK number of infections topped 25,000 and the death toll rose to near 1,800. Cases are expected to rise in the coming weeks and this is certainly going to weigh on the pound. As the market awaits the expected poor numbers from the US, and stocks moving lower, USD buying should continue to pressure the GBP, testing and breaking support levels. Better than expected UK data has not given any support to the pound as concerns over a global recession have weighed on the currency. GBP should trade lower today.


USD/JPY is trading in the middle of its overnight range as traders look at the currency as another safe-haven bet. Japan released its Tankan numbers overnight and the large manufacturing index fell to -8 in the first quarter of 2020, after reporting at 0 the previous quarter. This is the first negative reading in seven years, and the lowest report since 2013. It also was the fifth straight decline. Japan also released their PMI number, which fell to 44.8 in March from 47.8 in February. The manufacturing part of PMI contracted at its largest rate since the 2011 Tsunami. 


USD/CAD once again is moving higher as the currency pair has pushed through technical resistance levels to trade near overnight highs. The ongoing saga of lower oil prices continues to weigh on the loonie. Larger inventories are pushing prices lower as Brent crude fell by $1.02 to trade at $25.33 per barrel, while U.S West Texas crude was down $0.35 at $20.13 per barrel. Investors' concerns over the spread of the virus and the effect on the Canadian economy has seen traders selling the Canadian dollar. Near term resistance levels should be tested during the day.


China’s Caixin PMI manufacturing number rose to 50.1 in March, up from last month’s 40.3, and beating the expected number of 45.8. While this number is somewhat positive, the total new business fell for the second month. According to the Director of Macroeconomic Analysis at CEBM Group, Dr. Zhong Zhengsheng, “the manufacturing sector was under double pressure in March: business resumption was insufficient; and worsening external demand and soft domestic consumer demand restricted production from expanding further".

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