U.S. equity markets had their worst day since the Black Monday crash of 1987. The Dow fell almost 3,000 points as traders ignored the moves by the Federal Reserve on Sunday. The Cboe Volatility Index, which shows Wall Street’s concerns, posted the highest level ever closing at 82.69. This was higher than the worst number recorded during the peak of the financial crisis which was at 80.74. After testing overnight to more than 1000 points, hitting their upside limit, Dow Futures have reversed and given up all their gains. At the moment, Dow Futures are indicating an opening of around 50 points. As downward pressure continues in the equity markets the USD is much stronger overnight against the EUR, GBP, JPY, and CAD. The initial move higher coincided with higher US future equity moves, but the greenback has remained firm despite the reversal of stock sentiment early this morning. US Treasury yields are higher this morning as the 10-year note was trading at .8081%, and the 30-year bond was trading at 1.3999%.
EUR/USD remains under pressure as the Coronavirus spreads through Europe. ZEW Economic Sentiment for March fell to -49.5 points, after posting a 10.4 number in February. French President Macron commented overnight that we are at war”, as he presented new restrictions. France is shutting down today with all non-essential activities being banned. Germany has closed bars, theaters and museums, and Italy, the epicenter of the European outbreak continues to record more cases as well as more deaths due to the virus. European countries are planning to inject fiscal stimulus to support businesses. A coordinated move by European countries could aid the EUR but at present, market sentiment indicates a move lower.
GBP/USD has fallen to its lowest levels in six months, as safe-haven USD purchases continue due to the Coronavirus. Adding to the pound’s woes were disappointing job numbers as the unemployment rate rose to 3.9% from 3.8%. GBP jobless claims were higher as well. The British Chambers of Commerce has downgraded UK 2020 growth based on the Coronavirus. UK GDP is now projected to grow by 0.8%, which is lower than the previous forecast of 1.0%. This is the weakest growth forecast since 1992, besides the 2008 financial crisis. The pound is now testing overnight support and technical momentum has sellers outweighing buyers at present. Short coverings could see some bounce in the GBP, but the downside risk remains.
USD/JPY is also trading higher, just below overnight technical resistance levels. According to the Nikkei Asian Review, the Japanese government is considering extending tax cuts for small firms. A move higher in US bond yields has kept the USD/JPY trading higher. As with the other currencies, USD/JPY is testing resistance levels ahead of the North American trading day. As traders appear to be interested in placing “risk-on” trades, we could see the USD/JPY move higher. Japanese Foreign Minister Motegi has said he intends to discuss international cooperation regarding the virus at the G7 foreign ministers call. He is hoping to avoid a similar problem that had happened regarding the Diamond Princess cruise ship. Expect the USD/JPY to trade higher.
USD/CAD has broken through a couple of resistance points in overnight trading and is currently testing overnight highs. Despite a move higher overnight on oil prices, as some traders look to catch the bottom of the market, the pressure remains on the loonie. The price war between Saudi Arabia and Russia remains, but this morning Brent Crude was a $0.89 higher at $30.94 a barrel, a bit lower from the overnight high at $31.25. US West Texas crude was trading at $30.06, $1.36 higher, but lower than the overnight high of $30.21. According to traders, there has been some bargain hunting and short covering. Beginning tomorrow, Canada will be closing the borders to all non-Canadians. Prime Minister Trudeau has requested that all Canadians abroad come home.
China’s Q1 GDP estimates have been lowered by Goldman Sachs to -0.9% from a previous 2.5%. China’s full-year 2020 GDP growth forecast has been cut to 3% from 5.5%. These projections are different than China’s NDRC expectations. They expect the Chinese economy to return to normal in Q2. Moody’s has also forecasted slower growth in China, with GDP growth to come in at 4.8%. As of Monday, China’s number of confirmed Coronavirus cases has risen to 80,881, with 31 new cases reported. The total number of deaths has reached 3,226.