Daily Market Pulse

Awaiting stimulus vote


The USD opens trading today slightly under pressure as profit-taking by traders has seen the USD move lower against the EUR, GBP, and CAD, while range trading against the JPY. Congress continues to argue over legislation that would add additional funds to help stimulate the economy. The DOW yesterday swung back and forth as reports out of Washington indicated the bill would pass at first, but that did not happen. The Federal Reserve also began an open-ended asset purchase program, which initially had investors buying stocks. After failing over 500 points yesterday, DOW Futures are following the foreign stock markets and has risen over 900 points, indicating a positive opening when the US equity markets open later this morning. PMI releases all over the world are negatively affected, indicating how the Coronavirus has affected the world economies. US PMI is due out later today, with manufacturing PMI expected to fall from 50.7 to 42.0, and services PMI is expected to fall from 49.4 to 40.0. As investors await the passage of the stimulus bill, US Treasury yields are slightly higher this morning, with the 10-year note trading at 0.8243%, and the 30-year bond trading at 1.4025%. 


The EUR/USD is currently trading at overnight highs, despite negative PMI reports from France and Germany, indicating how devastating an effect the virus has had on the Eurozone economy. Adding to the upward move on the EUR, was “short-covering’ by traders as well as the moves by the Fed yesterday. French manufacturing PMI fell to 42.9 and German manufacturing PMI was lower as well falling to 45.7. There was some positive news out of Europe yesterday as Italy, Europe’s worst virus-hit country, reported fewer Coronavirus related deaths for the second day in a row. While the picture still looks rather grim, any positive news is welcomed and this has given some cautious optimism to the EUR.


GBP/USD is also trading near overnight highs, again reacting to the Fed moves and ignoring the two poor PMI numbers. Services PMI fell to 35.7 from last month’s 53.2, as the economic fallout of the virus has hit the UK as well. GBP moved higher late yesterday as UK Prime Minister Boris Johnson finally imposed stricter lockdown measures to combat the Coronavirus. It appears the markets are waiting for the passage of the US stimulus package which may give an impetus to buying currencies and selling the USD. As most markets are oversold, this would not be a surprising development. 


USD/JPY has bounced off overnight highs and is now trading towards the middle of the overnight trading range. According to the Japanese Finance Minister Aso, this move is being “driven by investors’ anxiety over the coronavirus outbreak.” As the global equity markets improved overnight, and with the US equity market expected to improve as well, traders are exiting some safe-haven trades and moving back into riskier options. Japan’s manufacturing PMI was lower falling to 44.8 from 47.8 the month before. This is the lowest level seen since April of 2019. Economists expect this economic downturn to continue as Japan has not issued a public lockdown as of yet. There are concerns that the economy will take a major hit if the Olympics are postponed, which is becoming more evident as participating countries are saying they will not send their athletes to the games scheduled for July.


USD/CAD has moved lower overnight as oil prices rose somewhat overnight as traders anticipate the passage of the US stimulus package. Brent crude oil futures for May rose $1.05 per barrel to $28.08, while West Texas Intermediate rose $1.20 to $24.56. Traders are indicating the move lower by the USD has aided the oil purchases and that has helped the CAD, as USD/CAD is trading just above its overnight lows. Canadian PM Trudeau announced a CAD 5 billion lending capacity for farmers and producers in response to the virus outbreak. 


According to economists, the Chinese economy could contract 10% in the first quarter of 2020. The China Beige Book announced this as primary indicators show the economy has fallen to its lower levels in 10 years. According to more than 3,300 businesses surveyed, conditions continue to deteriorate even though firms are re-opening and getting back to work. China announced that there were a total of 78 new cases reported yesterday, of which 74 were imported.

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