27-Feb-2020

1) Risk Pressure Continues
2) Daily Recommendations on Major – EUR/USD
3) Wall Street Drops Further
4) Dollar Little Changed As US Stocks Give Up Gains

 

 

1) Risk Pressure Continues

Yesterday’s Asia rebound once again proved to be a dead cat bounce as minimal gains were wiped out in the US session. Microsoft fell after hours after it cut sales forecasts for this quarter, which piled pressure on US indices during the Asian morning. The US30 and SPX500 indices both fell more than 0.7% while the NAS100 index declined 0.68%.

US30 losses since the mid-February peak have now reached 10%, those for the NAS100 are at 10.75% while the SPX500 has declined 9.5%. A 10% reversal is often seen as a signal of a reversal in the recent market trend.

The Bank of Korea kept its benchmark rate unchanged at 1.25% at this morning’s policy meeting, surprising the majority of surveyed economists who’d expected a 25 bps cut to be delivered. The decision was not unanimous, with two dissenters calling for a cut. Economic projections were updated, resulting in a cut to the 2020 GDP growth forecast to 2.1% from 2.3% while the CPI forecast for the year was affirmed at 1.0%.

In the subsequent press conference, BOK Governor Lee said the prior two rate cuts seem to be working (July and October last year) and have had a positive impact on the economy. He acknowledged that the CoVid-19 outbreak had affected consumption and exports, but thought more time was needed to gauge the full impact. He also noted that a GDP contraction in Q1 was possible.

The US has identified its first CoVid-19 case without ties to the outbreak. President Trump tweeted that the virus will probably spread to the US, and travel from places such as Italy and South Korea may need to be restricted, but now is not the time. Plans are in place for much larger scale quarantines if they are need.

As at 11.30am Singapore time, the total number of confirmed cases globally has reached 82,163 spread across 35 countries, with 2,800 virus-linked deaths reported. South Korea’s total has jumped to 1,595 while Italy’s stands at 453 (Source: Johns Hopkins University).

The GDP growth numbers for the fourth quarter are set to be left unchanged at today’s update. Surveys suggest growth will remain at +2.1% annualized. Other US releases scheduled today include durable goods orders for January, which are estimated to have fallen 1.5% after a 2.4% gain in December. We also have pending home sales for last month and the Kansas Fed manufacturing activity index for February. That’s expected to slide to -5 from -4.

Prior to the US data, we have a number of sentiment indicators from the Euro-zone for this month. Industrial and consumer confidence are both seen unchanged at -7.3 and -6.6, respectively while the business climate is expected to worsen to -0.28 from -0.23 and the services sentiment index probably improved to 11.2 from 11.0.

Central bank speakers include the Bank of England’s Cunliffe, Lane and De Guindos from the ECB and Evans from the Federal Reserve.

 

2) Daily Recommendations on Major – EUR/USD

Despite the single currency’s rise to 1.0890 on Tuesday and then higher to 1.0908 yesterday, subsequent retreat to 1.0856 suggests upmove from last Thursday’s near 3-year trough at 1.0778 has possibly made a temporary top there and consolidation with downside bias remains for a stronger retracement to 1.0831, however, support at 1.0806 would remain intact and yield rebound.

On the upside, only above 1.0908 would revive bullishness for marginal gain to 1.0915/20 but resistance at 1.0925 should cap current rise and yield correction.

New Zealand imports, trade balance, exports, NBNZ business outlook, NBNZ own activity.

Italy’s manufacturing business confidence, consumer confidence, EU business climate, economic sentiment, industrial sentiment, services sentiment, consumer confidence.

U.S. durable goods, durables ex-transportation, durables ex-defense, GDP, GDP deflator, core PCE prices, PCE prices, initial jobless claims, pending home sales, KC Fed manufacturing index, and Canada current account, average weekly earnings.

 

3) Wall Street Drops Further

US indices traded nervously yesterday, extending the recent decline as the number of new CoVid-19 cases outside China exceeded those within for the first time. Microsoft cut its sales forecasts for the current quarter while the Bank of Korea unexpectedly held rates at 1.25% this morning.

The US30 index has edged down to the lowest in four months in early trading this morning, extending the current decline to a sixth day

The index has opened below the 200-day moving average at 27,259 for the last two days. Losses from the mid-February peak are now at 9.9%. The 61.8% Fibonacci retracement of the August – February rally is at 26,771

Durable goods orders probably fell 1.5% in January after a 2.4% gain in December. US Q4 GDP is seen unchanged at +2.1% at today’s revision, according to the latest survey. Other data releases include pending home sales for January and the Kansas Fed manufacturing activity index for February.

The Germany30 index fell for a fifth consecutive day yesterday, touching the weakest level since October 11

The index is sitting near the 50% retracement of the rally from August to February at 12,546

A number of Euro-zone sentiment indices for February are due today, and are expected to show mixed results. Industrial and consumer confidence are seen unchanged, while the business climate is seen worsening and services sentiment is expected to improve, according to the latest surveys.

West Texas Intermediate opened below the 50 mark for the first time in two weeks yesterday. It touched the weakest since early-January this morning

The 78.6% Fibonacci retracement of the December to April rally is at $47.40

Yesterday’s drop was mitigated somewhat by a smaller-than-expected build in weekly US crude oil inventories. Just 452,000 barrels were added instead of the more than two million barrels expected.

 

4) Dollar Little Changed As US Stocks Give Up Gains

The greenback surrendered its early gains and ended the day little changed against its peers on Wednesday as US stocks ended the day lower after initially rising. Sterling fell across the board on renewed concern over March budget and expectation of an interest rate cut.

Versus the Japanese yen, dollar initially gained from 110.14 to 110.57 in Asian morning and despite retreating again to 110.14 in European morning, the pair then rose to session highs of 110.70 in New York morning on rally in U.S. equities before weakening to 110.18 in New York afternoon as US stocks gave up their initial gains and ended the day lower.

The single currency went through a hectic session. Although price gained from 1.0863 to 1.0897 in European morning and then briefly spiked up to a 13-day high at 1.0908 on cross-buying in euro, the pair met renewed selling and dropped to an intra-day low of 1.0856 in New York morning on usd’s renewed strength before recovering to 1.0900 in New York afternoon.

The British pound went through a volatile session. Cable met renewed selling at 1.3009 in Australia and intra-day fall accelerated in European morning and hit 1.2913 ahead of New York open on sterling’s broad-based weakness on growing expectation that the Bank of England may cut its interest rates in August and renewed budget concern which will be presented by British new Finance Minister Rishi Sunak on March 11th. Despite rebounding to 1.2950 in New York morning after EU Brexit negotiator, Michel Barnier said European Union is ready to offer Britain “super preferential access”, the pair then dropped to session lows at 1.2901 in New York afternoon.

Reuters reported Britain will confirm at a March 11 budget what fiscal rules will govern spending and borrowing, Prime Minister Boris Johnson’s spokesman said on Wednesday, responding to a plea from former finance minister Sajid Javid not to ditch an existing framework.    “As set out in the manifesto, we will continue to have a clear fiscal framework, and the detail of that is for the Chancellor to confirm at the budget,” the spokesman said.    Javid, who resigned earlier this month, urged the government to keep spending under control.

They also reported the European Union is ready to offer Britain “super preferential access” to its markets but this must come with strong fair competition guarantees, the bloc’s Brexit negotiator, Michel Barnier, said on Wednesday.    Barnier told the European Parliament that Britain wants a trade deal similar to the bloc’s agreement with Canada after it leaves the single market and customs union at the end of this year, but this will not be possible.    his is because of Britain’s proximity to EU nations and also the much larger trade volumes it has with the EU than Canada, he said.    “The UK says that it wants Canada. But the problem with that is that the UK is not Canada,” Barnier said.

In other news, Reuters reported it is too early for the European Central Bank to assess whether it needs to respond to the coronavirus epidemic with policy, even if the epidemic presents a risk to growth, Irish central bank chief Gabriel Makhlouf said on Wednesday.    “I still think it is too early to come to a view on what we at the European Central Bank should do about coronavirus,” he told a conference in Berlin, adding that all attention should be focused on supporting the health system.    “Right now, other than paying attention, I am not sure we have to rush to action,” Makhlouf, who sits on the ECB’s rate-setting Governing Council said.

On the data front, Reuters reported sales of new U.S. single-family homes raced to a 12-1/2-year high in January, pointing to housing market strength that could help to blunt any hit on the economy from the coronavirus and keep the longest economic expansion in history on track.    The Commerce Department said on Wednesday new home sales jumped 7.9% to a seasonally adjusted annual rate of 764,000 units last month, the highest level since July 2007.

December’s sales pace was revised up to 708,000 units from the previously reported 694,000 units. Economists polled by Reuters had forecast new home sales, which account for about 12.3% of housing market sales, would advance 3.5% to a pace of 710,000 units in January.