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BCC downgrades UK 2020 growth forecast to 0.8% on coronavirus impacts

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    ActionForex.com
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    The British Chambers of Commerce downgraded UK 2020 growth forecast due to disruption caused by the impact of coronavirus. GDP is now projected to growth 0.8% in 2020, lowered from prior forecast of 1.0%. That would be the weakest full growth growth since 1992, outside of 2008/09 financial crisis. Growth is than projected to pick up to 1.4% in 2021 and 1.6% in 2022.

    Suren Thiru, Head of Economics at BCC, said: “Early evidence of disruption to supply chains and weakening in consumer demand and business activity could mean that even in the case of a temporary shock to the economy, there may be some long-term impact on economic output – particularly if significant action is needed to combat its spread.”

    Adam Marshall, Director General, added: “Coronavirus could further weaken an already stagnant UK economy, as many businesses are starting to report an impact on their cashflow and growth prospects. The Chancellor and the Bank of England have responded to the immediate challenge with measures to help firms hit by Coronavirus, and they must now ensure this support gets to businesses as quickly as possible.

    DOW down 10% as selloff extends, key fibonacci support being tested

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      ActionForex.com
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      US stocks plunged deeply at open and hit the first circuit breaker immediately, halting trading of 15 minutes. There is no clear sign of any recovery after second open yet, with DOW currently down around -10%. We’d maintain DOW is close to a long term fibonacci support level of 38.2% retracement of 6469.96 to 29568.57 at 20744.89. And a rebound should be due.

      However, sustained break of 20744.89 could trigger another round of position squaring. Decline could accelerate further to 61.8% retracement at 15293.62.

      US Empire state manufacturing dropped to -2.15, worst since 2009

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        ActionForex.com
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        US Empire State Manufacturing Survey general business conditions index dropped a massive -34pts to -21.5 in March, well below expectation of 8.7. it’s also the worst reading since 2009. Looking at some details, new orders dropped -3.14 to -9.3. Shipments dropped -20.6 to -1.7. Delivery times dropped -6.1 to 2.2. Number of employees dropped -8.1 to -1.5. Average employee workweek dropped -9.6 to -10.6.

        Full release here.

        IMF ready to mobilize $1T lending capacity as coronavirus response

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          ActionForex.com
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          IMF Managing Director Kristalina Georgieva said in a blog post that the fund is ready to mobilize its USD 1T lending capacity to help member countries on coronavirus impacts. And, “as a first line of defense, the Fund can deploy its flexible and rapid-disbursing emergency response toolkit to help countries with urgent balance-of-payment needs.”

          Meanwhile she also urged that “the case for a coordinated and synchronized global fiscal stimulus is becoming stronger by the hour.” There are three areas of actions for the global economy, including fiscal policies, monetary policies and regulatory responses. “All this work—from monetary to fiscal to regulatory—is most effective when done cooperatively.”

          EU Breton: Obviously we are expecting a recession this year

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            ActionForex.com
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            EU’s internal market Commissioner Thierry Breton told BFM Business radio that due to the coronavirus pandemic “obviously we are expecting a recession during the year 2020.” “We are at war with the virus. An economic war.”

            He noted before before the crisis, EU were expectation around 1.4% growth for the whole continent. But, “now we expect a negative impact of between 2% and 2.5%”.

            BoJ Kuroda: Impact of coronavirus could continue for the time being

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              ActionForex.com
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              At the post meeting press conference, BoJ Governor Haruhiko Kuroda said the coronavirus has already has an impact of Japan’s economy through “decline in inbound tourism, as well as on exports, output and consumption”. Also, “event cancellations and people staying home have led to a sharp slump in consumption.”. Hence, BoJ revised down economic assessment.

              Additionally, “given the fact the epidemic is spreading with a lag among various countries, the impact of the virus could continue for the time being.” Nevertheless, he’s optimistic that “once the impact is mitigated demand could pick up”. Japan’s economy would resume a “moderate expansion trend” then.

              He also emphasized that it was “necessary to take necessary action quickly, particularly ahead of the March fiscal year-end, to ensure corporate financing remains smooth and markets restore stability.”

              BoJ eases by double ETF purchases, introduces new loan program

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                ActionForex.com
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                After an emergency meeting today, BoJ announced further monetary easing to counter the economic impact of coronavirus pandemic. In particular, annual pace of ETF purchase is doubled from JPY 6T to JPY 12T. J-REIT purchases are also doubled to JPY 180B per year.

                The Special Funds-Supplying Operations to Facilitate Corporate Financing is introduced to provide loans against corporate debt at 0% interest rate with maturity up to 1 year. The operation will be conduced until end of September this year.

                The policies under the yield curve control is held unchanged. Short-term policy interest rate target is kept unchanged at -0.10%. BoJ will continue to purchase JGBs to keep 10-year yield at around zero percent. Annual pace of monetary base expansion is kept at around JPY 80T.

                The central bank also pledged to “take additional monetary easing steps as needed without hesitation with a close eye on the impact from the coronavirus epidemic for the time being”.

                Full release here.

                China retail sales, production, investment posted sharp contraction in February

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                  ActionForex.com
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                  February economic data released from China are overwhelmingly poor, but unsurprising. Retail sales dropped -20.5% yoy versus expectation of -4.0% yoy. Industrial production dropped -13.5% yoy versus expectation of -3.0% yoy. Fixed asset investment dropped -24.5% ytd yoy versus expectation of -2.0% ytd yoy.

                  The National Bureau of Statistics sounded optimistic in its statement. It said, while the epidemic has incurred relatively big shocks to economic activities, the impacts are largely “short-term, external and controllable.” “The economy has withstood the shocks of the epidemic,” it added.

                  NZD/USD staying in down trend for 0.58 after Fed and RBNZ cuts

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                    ActionForex.com
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                    NZD/USD is trading mildly lower after emergency rate cut by both Fed and RBNZ. The pair remains in near term fall from 0.6755. Next near term target will be 100% projection of 0.6755 to 0.6191 from 0.6447 at 0.5883.

                    The level is close to a long term projection level too. That is, 61.8% projection of 0.8835 to 0.6102 from 0.7557 at 0.5868. Hence, we’d expect some support from 0.5868/83 to contain downside and bring rebound, at least on initial attempt. But, outlook will stay bearish as long as 0.6447 resistance holds, in any case.

                    RBNZ cut to -0.75% to 0.25%, QE next if more action needed

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                      ActionForex.com
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                      In an unscheduled announcement, RBNZ lowered Official case rate by -0.75% to 0.25%, and pledges to keep it there for at least the next 12 months. Additionally, should further stimulus be required, a “Large Scale Asset Purchase Programme” of government bonds would be preferable to another OCR cut.

                      In the statement, it said that “negative economic implications of the COVID-19 virus continue to rise warranting further monetary stimulus.” The impact to the New Zealand economy “is, and will continue to be, significant”. Demand will be “constrained”, as will domestic production. Spending and investment will be “subdued for an extended period”.

                      Full statement here.

                      Fed cut by -1%, restart asset purchase by at least $700B

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                        ActionForex.com
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                        Fed delivered another emergency rate cut late Sunday, by -1.00% to 0-0.25%. Federal funds rate are now back at the record low it hit during the 2008 global financial crisis. Additionally, Fed will restart asset purchases to boost its holdings by at least USD 700B, with USD 500B of treasury securities and USD 200B of agency mortgage-backed securities. Loretta Mester dissented, preferring a smaller rate cut instead.

                        Additionally, there are other measures announced too. Banks are allowed to borrow from the discount window for a long as 90%. Reserve requirement ratios were also lowered to 0%. Fed will also coordinate with other major central banks to ensure Dollar availability through liquidity swap line arrangements.

                        In the statement, Fed said that the coronavirus outbreak has “harmed communities and disrupted economic activity in many countries” including the US. The effects will “weigh on economic activity in the near term and pose risks to the economic outlook.” Fed will keep interest rate at the current range ‘until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

                        Full statement here.

                        U of Michigan consumer sentiment dropped to 95.9, limited reaction to coronavirus for now

                          By
                          ActionForex.com
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                          University of Michigan consumer sentiment index dropped to 95.9 in March, down from 101.0. Current economic conditions index dropped from 114.8 to 112.5. Consumer expectations index dropped from 92.1 to 85.3.

                          Surveys of Consumers chief economist, Richard Curtin:

                          “Consumer sentiment fell in early March due to the spreading coronavirus and the steep declines in stock prices. Importantly, the initial response to the pandemic has not generated the type of economic panic among consumers that was present in the runup to the Great Recession. Nonetheless, the data suggest that additional declines in confidence are still likely to occur as the spread of the virus continues to accelerate.

                          Perhaps the most important factor limiting consumers’ initial reactions is that the pandemic is widely regarded as a temporary event. The component of the Sentiment Index that posted the greatest loss involved judgements about prospects for the economy during the year ahead; this component fell by 29 points, accounting for 83% of the total point decline in early March. In sharp contrast, consumers more favorably judged the economic outlook over the next five years than last month.

                          While the most effective containment efforts are widespread closures and self-isolation, those same actions have the largest negative impact on the economy and significantly increase the probability that the pandemic will be followed by a recession that lasts longer than the virus.

                          The best policy antidote would be immediate relief provided by multiple sources of cash transfers and debt forbearance. To avoid a recession, speed is more essential than targeting. Moreover, maintaining confidence in the effectiveness of economic policies is essential, otherwise the intended behavioral reactions on spending may not be forthcoming. “

                          PBoC cut RRR to release CNY 550B liquidity

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                            ActionForex.com
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                            China’s PBoC announced to cut reserve requirement ratio for the second time this year to release CNY 550B of liquidity. RRR would be cut by 50-100bps from the original levels. The RRR cut will be effective next Monday. Banks which passed the annual review regarding lending to small companies will be qualified for the RRR reduction.

                            The central bank is “making its prudent monetary policy more flexible and appropriate,” the PBOC said in the statement. “The restoration and development of the real economy is being put in a more prominent position, while excessive liquidity will be avoided.”

                            German Altmaier supports pharmaceuticals companies to rebuild their productions in Europe

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                              ActionForex.com
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                              German Economy Minister Peter Altmaier indicated he would support pharmaceuticals companies to rebuild their productions in Europe. Nationalization could also be an option, for supporting supporting strategically important companies.

                              Altmaier said, “Minimizing one-sided dependencies in order to win back national sovereignty in sensitive areas is the right idea. I can well imagine a common European project for medicine production.”

                              Finance Minister Olaf Scholz said today the country is in “unusual times. the government is has earmarked billions of euros in financial aid to assist businesses and employees affected by the coronavirus outbreak.

                              ECB Lane: Interest rate cut is less relevant in the context of coronavirus

                                By
                                ActionForex.com
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                                ECB Chief Economist Philip lane said today that interest rate cut isn’t the most effective policy in the current situation. Nevertheless, further cuts remains an option if warranted by a tightening in financial conditions or a threat to inflation target.

                                He said, “a move in the short-term rate is typically most powerful if it is expected to be persistent, given the importance of the expectations channel in determining the influence of the short-term policy rate on the overall yield curve.” And, “this persistence channel is less relevant in the context of the spreading of the coronavirus”.

                                Nevertheless, ECB would “ensure that the elevated spreads that we see in response to the acceleration of the spreading of the coronavirus do not undermine transmission,” he added.

                                Bank of France head Francois Villeroy de Galhau also defended ECB’s lack of rate cut yesterday. He told Radio Classique, “our package is coherent as regards the economic analysis and is a powerful help for companies.”

                                Italy, the epicenter of coronavirus outbreak in Europe, is clearly dissatisfied with ECB’s move. Prime Minister Giuseppe Conte said yesterday. “Will they be enough? I don’t think so.” Conte said that the task of the ECB is “not hindering but facilitating” and that the institution needs to create “favorable financial conditions.”

                                New Zealand manufacturing index rose to 53.2 before coronavirus impacts

                                  By
                                  ActionForex.com
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                                  New Zealand Business NZ Performance of Manufacturing Index rose 3.4 to 53.2 in February. Executive director for manufacturing Catherine Beard said, “while the sector has not been hit hard by Covid-19 as yet, offshore experiences show how rapidly the situation can change, especially for those manufacturers who source materials offshore and cater for particular markets”.

                                  BNZ Senior Economist, Craig Ebert said that “The most encouraging aspect of the PMI – considering the global ructions beginning to emerge in February – was arguably its new orders.  These gained to 55.3, from 50.9 in January. And with widespread reports of supply-chain disruptions around the world, it was also interesting to see the PMI’s Deliveries of Raw Materials index had picked up to 53.1, from 47.7”.

                                  Full release here.

                                  A bounce is due in DOW after worst day since Black Monday

                                    By
                                    ActionForex.com
                                    -

                                    US stocks suffered the worst selloff since the history “Black Monday” crash in 1987 overnight. DOW closed down -2352.60 pts, or -9.99%. S&P 500 dropped -9.51% while NASDAQ dropped -9.43%. 10-year yield, however, rose 0.0239 to 0.849, extending the recovery from 0.398 made earlier this week.

                                    After the massive selloff, DOW is now sitting inside an important long term support zone, between 55 month EMA and 38.2% retracement of 6469.95 to 29568.57 at 20744.89. It should be about the place to end the first leg of the correction for DOW to have a bounce.

                                    Break of yesterday’s high of 23273.91, the lower end of the gap, would be the first sign of stabilization. The extent of the whole correction would very much depend on the strength and time of subsequent second leg consolidation.

                                    However, firm break of 20744.89 will suggest something more serious is happening. In that case, the next near term target will be 161.8% projection of 29568.57 to 24681.01 from 21702.34 at 19194.26.

                                    G7 pledges international cooperation as coronavirus cases break 130,000

                                      By
                                      ActionForex.com
                                      -

                                      US Treasury held a video conference with Canada, the European Commission, France, Germany, Italy, Japan and the United Kingdom. A short statement was issued noting, “The G7 is in regular contact and committed to continued international cooperation to address the global health and economic impacts of COVID-19.”

                                      The coronavirus pandemic continues with total cases surged pass 130,000 level to 134,684. Death toll reached 4,973 and is set to break 5,000 soon. Italy’s cases rose to 15,113, with deaths at 1,016. Iran’s cases hit 10,075, with 429 deaths. The virus is still spreading quickly in Europe as Spain added 869 cases to 3,146. France added 595 cases to ,2876. Germany added 779 cases to 2,745. US also reported 429 new cases to 1,730.

                                      China, the origin of this global pandemic, reported just 4 new cases a 1 new death. Accumulated total case hit 80,797, with 3,170 deaths.

                                      Fed to inject $1.5T to address coronavirus disruptions in treasury markets

                                        By
                                        ActionForex.com
                                        -

                                        Fed announced massive liquidity injection to ease market strains due to coronavirus outbreak. Up to USD 1.5T will be pumped into the financial system. New York Fed said that the fund will be made available in three tranches of USD 500B, starting with purchases of a broader range of treasury securities.

                                        New York Fed said, “these changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak..

                                        Some analysts noted that the move was basically restarting QE, or at least, a point towards restarting QE. More measures could be announced with the rate decision on March 18 next week. Currently, fed fund futures are pricing in 94.5% of -100 bps rate cut to 0.00-0.25%.

                                        Gold dives on Dollar rebound, focus on 1557 key support

                                          By
                                          ActionForex.com
                                          -

                                          Gold drops sharply following Dollar’s rebound today and the steep decline suggests that rise from 1562.9 has completed at 1703.28. At this point, outlook near term outlook is just neutral with 1557.04 resistance turned support intact. That is, larger up trend from 1160.17 is still in favor to extend through 1703.28 at a later stage.

                                          However, the picture is not looking too good with bearish divergence condition in daily MACD. Firm break of 1557.04 will confirm medium term topping. In that case, we should at least see correction to 38.2% retracement of 1160.17 to 1703.28 at 1495.81.

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