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Bundesbank Weidmann questioned if rate cut would ease coronavirus demand shock

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    ActionForex.com
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    Bundesbank Head Jens Weidmann admitted Germany’s economy will certainly be weigh down by global coronavirus outbreak. The economy could miss the central bank’s forecast of 0.6% GDP growth this year. There are numerous trade-related risks to the export-led economy. “Based on the current information, I am expecting this risk to actually materialize to a degree,” he said.

    But Weidmann also echoed ECB President Christine Lagarde’s comment that the spread of the coronavirus doesn’t warrant a monetary policy response yet. He questioned “whether you’re likely to go out to restaurants more often” if interest rates are lower.

    ECB Governing Council member Vitas Vasiliauskas said the central has a “wait and see approach” regarding the development of the coronavirus. And, “there is no problem for the governing council to meet in some extraordinary way, not to wait until the next monetary policy meeting.”

    Meanwhile, Eonia money market futures show that a -10bps rate cut by ECB at June’s meeting is fully priced in.

    Germany unemployment rate unchanged at 5%, EUR/CAD in medium term bullish reversal

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      ActionForex.com
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      Germany unemployment rate was unchanged at 5.0% in February, matched expectations. Unemployment dropped -10k, versus expectation of 3k rise. Import price index dropped -0.4%% mom in January, versus expectation of 0.2% mom. Euro remains one of the strongest one for the week pays little attention to the data.

      In particular EUR/CAD’s strong break of 1.4719 resistance suggests medium term reversal. That is, whole corrective decline from 1.6151 (2018 high) has completed with three waves down to 1.4263, after missing 100% projection of 1.6151 to 1.4759 from 1.5645 at 1.4253. Further rise should now be seen back to 1.4994 resistance. Sustained break there will further around this bullish case.

      Swiss KOF rose to 100.9, retail sales dropped -0.1%

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        ActionForex.com
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        Swiss KOF Economic Barometer rose to 100.9 in February, up from 100.1, above expectation of 97.0. That’s the third rise in a row and it “lingers just above its long-term average”. KOF said “clearly positive growth rates would be expected for the Swiss economy in the near future”. But it also noted that the result is “based on the sentiment before the outbreak of the coronavirus in northern Italy.”

        Also, the development was “primarily driven by an improvement in sentiment in the manufacturing sector”. Only financial sector had a “slightly negative impact. The other indicator groups considered in the Barometer (demand for exports, construction, hospitality, other services and domestic consumer demand) show a practically unchanged picture compared to the previous month.

        Also released, retail sales dropped -0.1% yoy in January, below expectation of 0.3% yoy.

        Mixed data from Japan while Abe pledges to “watch” coronavirus developments carefully

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          ActionForex.com
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          A batch of mixed economic data is released from Japan today. Industrial production rose 0.8% mom versus expectation of 0.4% mom. According to the survey by the Ministry of Economy, Trade and Industry, manufacturers expected output to growth 5.3% in February and than shrink sharply by -6.9% in March. However, unemployment rate jumped to 2.4% versus expectation of being unchanged at 2.2%. Tokyo CPI core slowed to 0.5% yoy in February, down from 0.7% yoy, missed expectation of 0.6% yoy.

          Prime Minister Shinzo Abe pledged to take policy steps is needed to shield the economy from the impact of coronavirus outbreak. He said “if the virus spread, it could have a huge impact on the economy. And, “we’re therefore watching developments carefully.” He added, Japan has “reserves to tap for virus response”. But there is “no immediate need for additional funding” yet.

          March Fed cut odds jumped to 96%, Dollar index pressure

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            ActionForex.com
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            Dollar is trading mixed for the week in reaction to global fears of Wuhan coronavirus pandemic. Yen and Swiss Franc are stronger naturally on risk aversion. But Euros’ strength is some what a surprise to the markets. Nevertheless, it can actually be explained by a sudden surge in market expectations of Fed rate cut, in preparing for global recession, including the US. Fed funds futures are currently pricing in 96.3% of a 25bps cut to 1.25-1.50% at March FOMC meeting. A month ago, that was less than 9% chance.

            Dollar index’s pull back from 99.91 is deeper than expected, with 38.2% retracement of 96.35 to 99.91 at 98.55. That’s a natural result as the greenback is being sold off against both Euro and yen. While further fall is likely for the near term, strong support is now expected between 61.8% retracement at 97.71 and 55 day EMA at 98.26 to contain downside to bring rebound. That should happen at least for the first downside attempt in the area.

            DOW selloff extended, heading to 24175 fibonacci level

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              ActionForex.com
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              US stocks suffered another day of crash overnight, DOW lost another -1190.95 pts, or -4.42% to close at 25766.64. With -11.13% decline for the week so far, it’s among the top 15 of DOW steepest weekly selloffs. S&P 500 dropped -4.42% while NASDAQ dropped -4.61%. Both are heading for their worst weeks since 2008 financial crisis too. 10-year yield dropped -0.011 to 1.299 while 30-year yield dropped -0.012 to 1.784. Both were new record lows.

              DOW selloff was way worse than we initially thought. 55 week EMA was taken out without any hesitation. Bearish divergence condition in weekly MACD suggests that it’s set up for further correction. From pure technically point of view, current fall could extend to 38.2% retracement of 15450.56 to 29568.57 at 24175.49, which is close to long tem trend line support, before have enough support for sustainable rebound.

              Global coronavirus spread intensifies as WHO called for swift and aggressive actions

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                ActionForex.com
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                While new Wuhan coronavirus cases appeared to have slowed to the lowest pace since January, global spread is intensifying. In China, there were 327 new confirmed cases of the coronavirus on Thursday, as reported by the National Health Commission, bringing the total to 78824. Death toll rose 44 to 2788.

                On the same day, number of cases in South Korea jumped by another 505 to 1766, with 13 deaths. Italy’s number of cases spiked by more than 50% in just 24 hours, hitting 650, with 17 deaths. Iran’s number rose to 245, with 26 deaths. An Iranian vice president is infected with six other officials. Iran’s former ambassador to the Vatican died of the coronavirus In Japan, total cases reached 210, with 4 deaths, prompted the government to close all schools for a month.

                World Health Organization director-general Tedros Adhanom Ghebreyesus warned that “every country must be ready for its first case.” “We’re at a decisive point,” he said. “The epidemics in the Islamic Republic of Iran, Italy and the Republic of Korea demonstrate what this virus is capable of.” He also urged swift and aggressive actions and the preparations will be “the difference between one case and 100 cases in the coming days and weeks.”

                Less than a month ago, when the outbreak was mostly confined within China, Tedros urged countries not to impose travel restrictions on people coming out of China. He called the global spread “minimal and slow” back then. over 420k people have signed a petition to call for resignation of Tedros for breaking political neutrality in his handling of the outbreak.

                US durable goods orders dropped -0.2%, ex-transport orders rose 0.9%

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                  ActionForex.com
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                  US durable goods orders dropped -0.2% in January to USD 246.2B, better than expectation of -1.5% decline. Ex-transport orders rose 0.9%, above expectation of 0.2%. Ex-defense orders rose 3.6%.

                  The second estimate of US Q4 GDP showed 2.1% annualized growth, unrevised, unchanged from Q3’s reading. PCE price index was revised down from 1.6% to 1.3%. PCE core index was also revised down from 1.3% to 1.2%.

                  US initial jobless claims rose 8k to 219k

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                    ActionForex.com
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                    US initial jobless claims rose 8k to 219k in the week ending February 22, above expectation of 211k. Four-week moving average of initial claims rose 0.5k to 209.75k.

                    Continuing claims dropped -9k to 1.724m in the week ending February 15. Four-week moving average of continuing claims rose 5.25k to 1.729m.

                    Full release here.

                    ECB Schnabel: We are very worried about spread of coronavirus

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                      ActionForex.com
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                      ECB Executive Board member Isabel Schnabel said policymakers are “very worried about what is currently happening with respect to the spread of the coronavirus.” “We know that this is really raising uncertainty to a large degree, for the global growth outlook but of course also for the outlook for the euro area.”

                      “But what we really need to understand when we are doing monetary policy is what are the potential medium-term implications, and at the moment this is unclear”, she added.

                      UK threatens to move our from negotiation with EU by June

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                        ActionForex.com
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                        UK government published today the negotiation mandate with EU in the document titled “The Future Relationship with the EU The UK’s Approach to Negotiations“. There the UK government threatens to walk out from the table by June if not enough progress is made.

                        UK reiterated that it “will not extend the transition period”. That still “leaves a limited but sufficient” time to reach an agreement. After an “appropriate number of negotiating rounds” between now and June, UK would hope that “the broad outline of an agreement would be clear and be capable of being rapidly finalised by September”.

                        However, “if that does not seem to be the case at the June meeting, the Government will need to decide whether the UK’s attention should move away from negotiations and focus solely on continuing domestic preparations to exit the transition period in an orderly fashion.”

                        Cabinet office minister Michael Gove told parliament that “a the end of the transition period on the 31st of December, the United Kingdom will fully recover its economic and political independence. We want the best possible trading relationship with the EU, but in pursuit of a deal we will not trade away our sovereignty.”

                        Eurozone economic sentiment rose to 103.5, on stronger consumers and industry managers

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                          ActionForex.com
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                          Eurozone economic sentiment indicator rose to 103.5 in February, up from 102.6, beat expectation of 101.5. The improvement resulted from higher confidence among consumers and, to a lesser extent, industry managers. Looking at some details, industry confidence rose from -7.0 to -6.1. Services confidence edged up from 11.0 to 11.2. Consumer confidence rose fro -8.1 to -6.6. Retail trade confidence dropped slightly from -0.1 to -0.2. Construction confidence dropped from 5.8 to 5.3.

                          Amongst the largest euro-area economies, the ESI saw marked improvements in the Netherlands (+2.0), France (+1.9) and Spain (+1.2), while a more moderate one in Germany (+0.6). Sentiment in Italy remained flat (+0.0).

                          Full release here.

                          PBoC pledges ample liquidity and targeted support

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                            ActionForex.com
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                            China’s PBoC insisted that economy goals for 2020 can still be achieved in spite of the coronavirus outbreak, and pledged to have measures to ensure ample liquidity. Liu Guoqiang, Vice Governor of PBoC said “We’ll further release the long-term liquidity via multiple open market operations. And make targeted RRR cuts in appropriate time for banks that meet the requirement of releasing inclusive loans and serve the smaller firms.”

                            Xiao Yuanqi, the chief risk officer of the China’s Banking and Insurance Regulatory Commission emphasized “Support policies are mainly for smaller firms facing difficulties because of the virus outbreak, not those in difficult situations before. We’ll prevent non-performing companies from getting a free ride from the push, and prevent related moral hazard.”

                            One coronavirus infected Korean flight attendant traveled US route

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                              ActionForex.com
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                              The Korea Centers for Disease Control and Prevention (KCDC) confirmed that a coronavirus infected flight attendant travelled a Korea-US route. KCDC said “she took a flight after showing symptoms, and we are investigating people who had contact with the employee on the flight”. It’s believed that she worked on Korean Air’s flight KE017 from Seoul’s Incheon airport to Los Angeles on Feb. 19, and on the return flight KE012 on Feb. 20.

                              Yesterday, US CDC said the exposure of one coronavirus patient’s exposure is unknown. “It’s possible this could be an instance of community spread of Covid-19, which would be the first time this has happened in the United States.” President Donald Trump tried to down play the overall situation and said “because of all we’ve done the risk to the American people remains very low.”

                              Bank of Korean stands pat, micro support for businesses more effective than rate cut

                                By
                                ActionForex.com
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                                Bank of Korea defied some expectations and kept base rate unchanged at 1.25%, despite intensifying coronavirus outbreak in the country. The decision was not unanimous, though, as two board members voted for a cut.

                                Governor Lee Ju-yeo wide reaching rate cut is not the appropriate response to the outbreak at this instead. Instead, there should be targeted support for companies that are most affected. “A health security crisis is the cause of the current economic difficulties,” he said. “In a situation like that, micro support for self-employed businesses and companies in trouble is more effective than an interest-rate cut.”

                                Nevertheless, the central bank lowered this year’s growth forecasts from 2.3% to 2.1%. Lee said, “the revised outlook of 2.1 percent is based on the assumption that the new coronavirus (COVID-19) outbreak would peak out in March.” Further downgrade is possible is the outbreak lasts beyond Q1.

                                BoJ Kataoka: Coronavirus outbreak may weaken consumption and capital expenditure

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                                  ActionForex.com
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                                  BoJ known dove Goushi Kataoka warned today coronavirus out break could hurt consumption and poses uncertainty to the economy. He called by stronger actions by the central bank. He said, “we need to be mindful that consumption may weaken further as a trend”, and, “worsening sentiment among automakers and retailers could also affect the outlook for capital expenditure.”

                                  In his view, BoJ should deepen the negative interest rate further. Additionally, it’s “very important” for government and the central bank to coordinate their policies. He added, “I believe there’s room for the BOJ to review its policy framework and re-examine its effect including how it interacts with fiscal and pro-growth policies.”

                                  Separately, Deputy Governor Masayoshi Amamiya said that with digital currencies, central banks could stifle private-sector financial innovation and draw money away from deposits at commercial banks. However, central banks must also conduct a “comprehensive study” on how digital currencies would affect their settlement and financial systems.

                                  Australia private capital expenditure dropped -2.8% in Q4

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                                    ActionForex.com
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                                    Australia private capital expenditure dropped -2.8% in Q4, much worse than expectation of 0.5% increase. In seasonally adjust terms, building and structures dropped -5.9%. Mining dropped -2.7%. Equipment, plant and machinery rose 0.8% Manufacturing dropped -10.1%. Other selected industries fell -1.9%

                                    The set of data is rather disappointing as weak economic outlook appeared to have dampen investments again. Both monetary and fiscal stimulus are need for the economy. Q2 will be important for Australia as markets are expecting an RBA rate cut and increased government spending in May’s budget.

                                    New Zealand exports to China surged in January, coronavirus impact to be seen

                                      By
                                      ActionForex.com
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                                      New Zealand trade deficit came in at NZD -340m in January, better than expectation of NZD -530m. Goods exports rose 8.8% yoy to NZD 4.7B. Goods imports dropped -4.0% yoy to NZD 5.1B. In particular, exports to China jumped 31% yoy to NZD 3.1B.

                                      “China is New Zealand’s top trading partner and exports have grown strongly over the past three years, continuing into the first month of 2020,” international statistics manager Darren Allan said. “China is an especially important market for our top three exports, accounting for more than a quarter of dairy, about half of all meat, and almost two-thirds of wood exports in January. We will see any initial economic impact of coronavirus in February trade figures. This may reflect a change in demand because of the extended Chinese New Year holiday and quarantine imposed in some areas in China.”

                                      New Zealand ANZ business confidence plunged to -19.4, coronavirus taking a heavy toll

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                                        ActionForex.com
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                                        New Zealand ANZ Business Confidence dropped sharply from -13.2 to -19.4 in February. Confidence is worst in Agriculture at -63.6, and best in construction at 0. Activity Outlook index dropped from 17.2 to 12.0. Agriculture also scored the worst outlook at -30.3, with construction best at 21.9.

                                        ANZ noted, “it is clear that the human and economic damage being wrought by the devastating COVID-19 outbreak in China, and now in other countries, is taking a heavy toll on sentiment and confidence in the primary sector and manufacturers already”.

                                        Coronavirus cases in South Korea and Italy continue to surge

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                                          ActionForex.com
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                                          In China, the National Health Commission reported 433 new confirmed coronavirus cases on February 26, bringing to accumulated total to 78497. Death toll rose 29 to 2641.

                                          South Korea, the worst outbreaks outside of mainland China, reported another 334 cases, bringing the total to 1595. Italy and Iran are having the worst developments next to South Korea. Italy reported a total of 447 confirmed cases so far, with 12 deaths. Iran had 139 cases with 19 deaths. South American reported the first confirmed case in Brazil, a 61-year old man who recently visited Italy.

                                          Situation in the US is so far contained, with 15 cases only. President Donald Trump appointed Vice President Mike Pence to lead and coordinate response to the coronavirus. For now, Trump said “it’s not the right time” to extend travel restrictions to other affected countries like Italy and South Korea.

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