· The yen pulled ahead and the yuan fell against the dollar on Tuesday as the spread of a pneumonia-like virus in China sparked a sudden bout of risk aversion and sent Asian stocks skidding.
The yuan slipped against the U.S. currency in onshore and offshore trade after a Chinese health expert said the virus can pass from person to person as the fourth death from the illness was confirmed.
The outbreak of the disease, which has spread from the central city of Wuhan, is still in its early stages. However, it comes right before the peak travel season during the Lunar New Year holidays, raising risks that it could spread further.
The yen edged 0.2% higher to 109.97 per dollar on Tuesday.
In the onshore market, the yuan fell to 6.8973 per dollar, the lowest level in almost a week. In the offshore market, it dropped to 6.9007.
The dollar index against a basket of six major currencies stood at 97.589, near the highest level in a month.
The euro was locked in a narrow range before a European Central Bank (ECB) meeting on Thursday where it is expected to launch a comprehensive review of central bank strategy, including the ECB’s inflation target.
Against the dollar, the euro traded at $1.10968 The common currency was also quoted at 85.30 pence.
· IMF Predicts Modest Global Growth; US GDP to Fall in the Next 2 Years
The latest IMF economic outlook – Tentative Stabilization, Sluggish Recovery–shows global growth prospects downgraded from the October WEO Outlook over the next two years. Global growth is now projected at 3.3% in 2020 (down from a prior 3.4%) and 3.4% in 2021 (down from 3.6%).
According to the report ‘The downward revision primarily reflects negative surprises to economic activity in a few emerging market economies, notably India, which led to a reassessment of growth prospects over the next two years. In a few cases, this reassessment also reflects the impact of increased social unrest.
-US growth is expected to moderate from 2.3% in 2019 to 2% in 2020 (down 0.1%) and decline further to 1.7% in 2021.
-Euro Area growth is expected to pick-up from 1.2% last year to 1.3% this year (down 0.1%) and to 1.4% in 2021.
-UK growth is projected to stabilize at 1.4% in 2020 and to nudge marginally higher to 1.5% next year.
-Japan’s growth rate is projected to fall from 1% in 2019 to 0.7% in 2020 (0.2% higher) and then decline further to 0.5% in 2021.
-Chinese growth is estimated at 6.1% in 2019, 6.0% in 2020 and 5.8% in 2021.
· As world leaders are descending on Davos, Switzerland for the World Economic Forum’s 50th annual summit, experts are struggling to figure out where the world economy is headed. The IMF is the latest major organization to revise its global growth estimates downwards, cutting 0.1 points off its GDP growth forecast for 2019 and 2020 and 0.2 points off its 2021 prediction.
In tentatively lowering its forecast, the IMF tried to balance easing risk factors on the one hand (U.S.-China trade war, no-deal Brexit) with growing concerns over other issues (tensions in the Middle East, social unrest) while also taking into account persistent issues such as slowdowns in former growth drivers India and China. The IMF’s latest downward revision is the fourth since January 2019, when the organization had projected growth rates of 3.5 and 3.6 percent for 2019 and 2020.
The IMF remains relatively optimistic compared to other major forecasting organizations, however, none of which expect the world economy to bounce back as quickly in 2020 and 2021 as the IMF does. Cautious optimism notwithstanding, Gita Gopinath, the IMF’s chief economist, pointed out that “the projected recovery for global growth remains uncertain. It continues to rely on recoveries in stressed and underperforming emerging market economies, as growth in advanced economies stabilizes at close to current levels.”
As the following chart shows, estimates for this year’s global economic growth range from 2.5 percent (World Bank and UN) to 3.3 percent (IMF). The same holds true for 2021, when the World Bank puts global GDP growth at 2.6 percent, 0.8 points below the IMF’s prediction of 3.4 percent.
· BOJ leaves monetary policy unchanged, as widely expected
On Tuesday, the Bank of Japan (BOJ) monetary policy board concluded its 2-day January policy review meeting and decided to keep its monetary policy settings unchanged, holding rates at -10bps while maintaining 10yr JGB yield target at 0.00%.
The central bank maintained forward guidance on interest rates, saying “they will remain at current or lower levels for as long as needed to guard against risk momentum for hitting price goal may be lost”.
The Yen was unfazed by the BOJ announcement, leaving the USD/JPY pair in a familiar range below 110.00, -0.20% on the day.The Yen was unfazed by the BOJ announcement, leaving the USD/JPY pair in a familiar range below 110.00, -0.20% on the day.
· The Bank of Japan kept monetary policy steady and nudged up its economic growth forecasts on Tuesday, as the government’s stimulus package and receding pessimism over the global outlook took some pressure off the central bank to top up stimulus.
The BOJ also signaled cautious optimism over the global economy after the United States and China agreed on a preliminary deal to defuse their bitter trade war, saying that risks surrounding the outlook have “subsided somewhat.”
Markets will now scrutinize BOJ Governor Haruhiko Kuroda’s post-meeting briefing for clues on how his views on the pros and cons of his stimulus could affect policy decisions this year.
As widely expected, the BOJ kept its short-term interest rate target at -0.1% and a pledge to guide 10-year government bond yields around 0%.
It also maintained a guidance that commits to keeping rates at current low levels, or even to cut them, until risks keeping it from achieving its 2% inflation goal subside.
In a quarterly review of its forecasts, the BOJ revised up its growth projection for the fiscal year beginning in April to 0.9% from an estimate of 0.7% growth made in October, helped by a boost from the government’s fiscal stimulus package.
The central bank also upgraded its growth estimate for fiscal 2021, but largely maintained its price forecasts that show inflation missing its 2% target through early 2022.
The world’s third-biggest economy ground to a near halt in July-September and is likely to have contracted in the final quarter of last year as the U.S.-China trade war knocked exports.
BOJ officials hope the government’s $122 billion fiscal package and robust capital expenditure will offset the hit from soft global demand and supply chain disruptions from last year’s typhoons that continue to weigh on factory output.
· The Chinese official investigating a pneumonia outbreak stemming from a new coronavirus said the disease can spread from person to person but can be halted with increased vigilance, as authorities on Tuesday confirmed a fourth death.
Coronavirus spreading into Australia, a Brisbane man undergoes tests - Australian press
According to an Australian news outlet, Queensland's Chief Health Officer Jeneatte Young announced on Tuesday that a Brisbane man was being held in isolation at home as further tests are carried out.
· Three Katyusha rockets on Monday landed near the U.S. embassy in the heavily fortified Green Zone in central Baghdad, an Interior Ministry official said.
The attack took place around midnight when the three rockets landed near the U.S. embassy in the Green Zone, which also houses some of the main Iraqi government offices, the official told Xinhua on condition of anonymity.
There were no immediate reports about casualties, the source said.
· Moody’s downgraded Hong Kong’s credit rating one notch to “Aa3” from “Aa2″ on Monday, saying its view on the strength in the Chinese-ruled city’s institutions and governance is “lower than previously estimated.”
The agency, however, moved its outlook to stable from negative.
“The absence of tangible plans to address either the political or economic and social concerns of the Hong Kong population that have come to the fore in the past nine months may reflect weaker inherent institutional capacity than Moody’s had previously assessed,” the agency said in a statement.
Moody’s said its stable outlook reflects Hong Kong’s superior fiscal strength and consistent macroeconomic stability.
· The Chinese government should and will let authorities in Hong Kong resolve the continued public protests that have beset the financial center, according to the chair of the Hong Kong Stock Exchange (HKEX).
“We should be able to resolve the issues and the (Hong Kong) government are beginning to resolve some of the issues.”
· Oil prices fell nearly 1% on Tuesday as investors expected Libya’s oil production to eventually resume following a force majeure declared by the oil exporter on two major oilfields amid a military blockade.
Brent crude LCOc1 was down 56 cents, or nearly 0.9%, at $64.64 per barrel by 0748 GMT, after rising to its highest in more than a week on Monday. U.S. West Texas Intermediate crude CLc1 was down 35 cents, or 0.6%, at $58.19 a barrel.
Reference: Reuters, CNBC, Statista
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