Another volatile overnight as equity markets gave up initial gains in early trading and now DOW Futures are pointing towards a negative opening of around 100 later today. Equity markets initially rose after the European Central Bank announced a massive stimulus package. Yesterday the DOW dropped over 1,300 points to close below 20,000 for the first time since February 2017. The New York Stock Exchange announced on Wednesday that it will temporarily close its trading floor and move fully to electronic trading, as two people tested positive for the disease at screenings it conducted this week. All-electronic trading will begin on March 23 at the open. The USD remains well bid against the EUR, GBP, and CAD while holding its own against the JPY. As the Coronavirus pandemic continues, the USD remains firm as traders look to the greenback as a safe-haven alternative. US Treasury yields were much higher overnight as investors were sellers of 10 and 30-year bonds, as investors await the federal stimulus package. The 10-year note rose to 1.2260%. The 10-year had been quoted as low as .65% on Monday. The 30-year bond also moved higher to 1.6840%.
Yesterday evening, ECB announced a new Pandemic Emergency Purchase Programme that will be able to use EUR 750 billion to purchase securities to help support the European economy. According to the press release, “The ECB will ensure that all sectors of the economy can benefit from supportive financing conditions that enable them to absorb this shock.” The ECB added, “This applies equally to families, firms, banks, and governments. The Governing Council will do everything necessary within its mandate.” The move by the ECB has not helped the EUR. The single currency continues its downward move, trading close to overnight lows, as traders ignore the ECB move and continue to buy dollars. Corporations, investors and governments around the world continue to move to protect themselves from a global recession and the asset of choice is cash and the currency of choice is the US dollar. Technical support levels are not holding and despite being “oversold”, the EUR is expected to trade lower. The number of cases of the virus in Europe has now surpassed those in China, as Italy reported another 475 deaths.
GBP/USD also moved lower overnight as the pound moved to levels not seen since 1985 before recovering a bit. Traders are selling the pound in response to the opinion that the UK was late to the table concerning mass gatherings and fiscal stimulus to combat the pandemic. The UK did announce a GBP 330 billion stimulus package, but traders are still in selling mode. As the currency moved lower, technical stop-loss sell orders were triggered pushing the pound lower. Even though GBP/USD is at an oversold technical level, expect the pressure to remain on the GBP.
USD/JPY has reversed its move lower over the last few hours and is now trading near overnight highs. While traders still look towards JPY as a safe haven alternative, the move into USD globally is also affecting the JPY at the moment. Bank of Japan minutes were released and it was noted that “it is appropriate to continue with the current monetary easing”. The Bank is confident that once the virus is contained, the Japanese economy will rebound, but the negative effect may last for some time. While uncertainty rules the market at the present time, the BOJ is ready to work to stabilize the financial system. USD/JPY could move higher today if overall dollar buying continues.
Commodity currencies continue under pressure as traders are forecasting far lower demand for resources in the months ahead. USD/CAD fell to its lowest level in over three years. Lower oil prices are negatively affecting the loonie as oil fell overnight to an 18 year low. US West Texas Intermediate crude fell over $6.50 to $20.37 per barrel, the lowest level since February 2002. Brent crude moved lower as well, falling over $4.00 to $24.67, the lowest level since 2003. The Bank of Canada is committed to doing whatever is necessary to keep the economy running. The comments made include the possibility of lowering interest rates and ensuring that credit is available to households and businesses.
Economists expect the Chinese economy to show contraction in Q1 2020. Recent PMIs released for January and February declined by 13.5%, and China also announced severe contraction in exports and retail sales. While activity is has begun to recover, there is still ways to go. Recovery is expected to occur in Q2 but the extent of that recovery will depend on how quickly the rest of the world recovers from the Coronavirus pandemic. The latest figures regarding the virus show a total of 80,928 cases with 3,245 deaths. According to reports, there were no new cases reported today in the Wuhan province.