· The dollar held firm on Tuesday after a key U.S. manufacturing survey showed a surprise recovery, while the Australian dollar rose after the central bank left rates steady and retained the outlook despite bushfires at home and a virus epidemic in China.
The widening coronavirus outbreak in China kept markets on edge, however, while traders also eyed the U.S. state of Iowa, where Democrats began months-long process to choose a challenger to President Donald Trump.
The dollar index held firm at 97.832, having risen 0.44% on Monday, the biggest gain so far this year.
Against the yen, the dollar traded at 108.70 yen, after a gain of 0.3% on Monday, the biggest gain in a downtrend that started in mid-January.
The euro stood at $1.1057, having slipped 0.3% on Monday.
The Australian dollar rose 0.35% to $0.6714, pulling away from a 10-1/2-year low of $0.6670 touched last October, after the Reserve Bank of Australia (RBA) kept its main cash rate at a record low of 0.75%.
The offshore yuan gained 0.1% to 7.0022 yuan per dollar, in line with rebounds in Chinese shares and holding above its one-month low of 7.0230 per dollar hit in European trade on Monday.
Elsewhere, sterling was soft at $1.2999, having lost 1.54% on Monday on renewed worries about Britain’s relations with the European Union.
· The first-in-the-nation Iowa Democratic presidential caucuses are too early to call, according to NBC News.
Bernie Sanders, Joe Biden, Pete Buttigieg, Elizabeth Warren and Amy Klobuchar were the polling leaders in the state heading into Monday’s caucuses.
Entrance poll data shed some light on the demographics and views of the caucus voters.
· Coronavirus updates: Hong Kong reports first death as mainland China cases cross 20,000
Hong Kong’s Hospital Authority told CNBC that a 39-year-old man had died in the city’s first coronavirus-related death.
This would be the second known death outside of mainland China. On Sunday, officials said a man from Wuhan died in a hospital in Manila, Philippines.
· The U.K. and EU both set out their negotiating positions on Monday with Prime Minister Boris Johnson blithely stating that there was “no need” for the U.K. to accept EU rules as part of a free trade agreement, and if the EU won’t budge and give it a Canada-style free trade agreement, it could walk away.
Meanwhile in Brussels Monday, the EU’s chief Brexit negotiator Michel Barnier stated practically the opposite: That while the EU wants an “highly ambitious” trade deal with U.K., with zero tariffs and quotas on all goods, such an offer was reliant on the U.K. agreeing to open and fair competition in the long-term and guarantees to ensure a “level playing field.”
· The U.S. Commerce Department on Monday finalized a new rule to impose anti-subsidy duties on products from countries that it has determined undervalue their currencies against the dollar, including potentially China.
The move could provide a fresh irritant in U.S.-China trade talks just weeks after the world’s two largest economies signed a Phase 1 trade agreement, and comes a day after Beijing accused Washington of spreading fear about the fast-spreading coronavirus that originated in China.
· Chinese President Xi Jinping called on all officials to quickly work together to contain a deadly new virus at a rare meeting of top leaders, saying the outcome would directly impact social stability in the country.
The effort to contain the virus directly affects people’s health, China’s economic and social stability, and the country’s process of opening up, he told a meeting of the Communist Party’s powerful Politburo Standing Committee on Monday. Leaders also urged officials “to achieve the targets of economic and social development this year” and “promote stable consumer spending.”
It was the second meeting of China’s senior-most leaders to handle the crisis in recent days, a rare occurrence over the past few decades. The virus has already claimed more than 400 lives in China and sent its equity markets plunging.
· Hong Kong reported its first coronavirus death and Macau ordered casinos to shut for two weeks as the Chinese territories battled to halt the spread of an epidemic that has claimed more than 420 lives in mainland China.
Hong Kong’s first fatality from the newly identified virus was a 39-year-old man who suffered from an underlying illness and had visited China’s Wuhan city - the epicenter of the outbreak - in January, hospital staff said.
· Fed's Bostic says new virus hasn't changed his outlook
China’s virus outbreak has prompted traders to begin pricing in a U.S. interest rate cut by June but has not swayed the views of Atlanta Federal Reserve Bank President Raphael Bostic, one of 17 Fed officials who set U.S. monetary policy.
“We did three cuts and right now they are working their way through the economy,” Bostic said of the Fed’s interest-rate reductions last year. “We’ll just have to wait and see. That was a lot of stimulus for where the economy was, and should make it more resilient to these sorts of things.”
“If this becomes a world issue, with ripples through many countries and many economies, then that’s different type of event than as I understand it to be today,” Bostic said in an interview on the sidelines of a Global Interdependence Center conference in San Diego. “But given our past recent experience with these sorts of things, I don’t think it should; it hasn’t changed my outlook or my expectation about our rates path.”
· Oil prices rose on Tuesday, matching moves in other financial markets as investors regained calm after Monday’s sharp sell-off on fears of the impact of the China coronavirus on demand for fuel sent crude to its lowest level in more than a year.
Brent crude was at $54.66 a barrel by 0227 GMT, up 21 cents, or nearly 0.4%, while U.S. West Texas Intermediate (WTI) crude was up 32 cents, or 0.6%, at $50.43 a barrel.
Both Brent and WTI are currently down by more than 20% from this year’s peak on Jan. 8.
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Oil price volatility to remain elevated on virus worries: Goldman Sachs
The global oil market expects the coronavirus outbreak to create a large demand shock and keep volatility in spot prices elevated, Goldman Sachs said.
The market is pricing in a 500,000 barrels per day average year-on-year loss in oil demand for 2020, all else constant (except for the positive impact of lower oil prices on demand), the Wall Street Bank said in a note dated Feb. 3.
“Oil prices are now at levels where we would expect a supply response from both OPEC and shale producers, and where China would likely seek to build crude inventories,” Goldman Sachs said.
The bank also said the market is expecting a negative impact of 0.44% on global GDP due to the virus.
· WTI : Off 13-month low, death cross on monthly chart
West Texas Intermediate (WTI) oil is currently trading at $50.30, having dropped to a 13-month low of $49.68 two hours ago. The black gold is witnessing a corrective bounce at press time.
WTI is officially in a bear market, having dropped by more than 20% since topping out at $65.62 on Jan. 8. A major portion of the sell-off could be associated with continued fears about the impact of the coronavirus epidemic on the global economy.
Death cross a bear trap?
WTI's 50-month average has crossed below its 200-month average, confirming a death cross, a bearish indicator.
Moving averages, however, are based on historical data and tend to lag price. The death cross, therefore, is a big-time lagging indicator and often traps the sellers on the wrong side of the market - that is, it tends to occur following a big price slide, with prices rallying soon after. Moreover, the market is oversold by the time the crossover happens.
So, the minor bounce seen at press time could turn out to be a notable corrective rally - more so, as the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, are reportedly planning to deepen the oil output cut agreement by an additional 500,000 barrels per day to stem the fall in oil prices.
Reference: Reuters, CNBC, FX Street
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