· The safe-haven yen eased slightly on Wednesday amid signs China was looking to fend off economic threats from the coronavirus, which supported investor confidence as the outbreak’s spread appeared to slow.
Meanwhile, a Bloomberg report, citing sources, that China is considering cash injections or mergers to bail out airlines hit by the virus also supported appetite for risk.
The yen traded 0.2% weaker by the afternoon at 110.05 per dollar JPY=. The euro EUR= hovered around $1.08, pausing a slide that sent it to a three-year low overnight.
The New Zealand and Australian dollars both advanced by about 0.1%.
Investors are looking to the minutes from the Federal Reserve’s January meeting, due to be released at 1900 GMT, for insight on the Fed’s thinking about virus risks.
· The EUR/USD pair has a major support at 1.0763
which is seen by Karen Jones, an analyst at Commerzbank, as the point where the pair will turn around.
Key quotes
“EUR/USD has continued to collapse lower and remains on course for the 1.0763 2000-2020 uptrend. This is key support and we look for it to hold the downside and provoke reversal. So far there is no sign of a bounce.”
· US DOLLAR DRIVES AS FED BACKS DEEPER INTO CORNER
Economic data in the United States hasn’t been all that bad of recent, evidenced by last week’s CPI data for the month of January. US inflation came in at an annualized 2.5%, much higher than last year’s low read in the indicator at 1.5% and clearly showing some element of response to the bank’s three rate cuts last year.
But – rates markets are still very much expecting some future softening out of the Fed. There’s but a 14% probability (as of this writing) that the Fed doesn’t cut rates by the end of the year. US Treasuries continue to gain ground as yields drive-lower, with the 10-year nearing the vaulted 1.5% marker as the 30-year flirts with sub-3%.
So – why is the US Dollar so incredibly strong? It would appear that risk aversion continues to play a role here as the USD has continued to climb even though the Fed is expected to cut without the same drive of data dependency that’s supported prior moves of softening. The Greenback is now trading at fresh four-month-highs, driving above the zone of resistance that put in a pause last week. Sitting ahead – the 99.67 level currently marks the two-year-high in the USD; and beyond that the 100.00 psychological level on DXY may provide some element of resistance, as well.
CORONAVIRUS OUTBREAK
· Morgan Stanley says China’s first-quarter growth could fall as low as 3.5% due to coronavirus
China’s economic growth in the first quarter could fall to as low as 3.5% if the spread of the new coronavirus is not contained fast enough for manufacturing production to resume to normal levels, Morgan Stanley analysts wrote in a Wednesday report.
Morgan Stanley analysts said they expect manufacturing production in China to reach 60% to 80% of the usual levels by the end of this month, and be back to normal by middle to late March. But they warned of uncertainties surrounding the virus outbreak.
· There are no indications that there are cases of the new coronavirus in North Korea, a World Health Organization (WHO) official said, despite South Korean media reports suggesting the outbreak had spread to the isolated country.
· As the coronavirus outbreak rages on, Raymond James said China’s delayed response is inciting comparisons to the Soviet Union’s response to the Chernobyl nuclear disaster, and that things could get worse in terms of economic and market impact.
China’s “slow reaction and continued unanswered questions appear to be sowing real concerns among the Chinese people,” wrote a team of Raymond James analysts led by Chris Meekins in a note to clients, which is amplifying concerns over General Secretary Xi and the Chinese Communist Party’s grip on power.
· Japan’s machinery orders tumbled at their fastest pace since 2018 while exports posted a 14th straight month of decline as the world’s third-largest economy grappled with the widening impact of the coronavirus outbreak and a recent sales tax hike.
Government data out on Wednesday showed exports fell 2.6% year-on-year in January, smaller than a 6.9% decrease expected by economists and dragged by U.S-bound shipments of cars and construction and mining machinery. It followed a 6.3% fall in December.
· Germany’s DIHK Chambers of Industry and Commerce said on Wednesday it expected Europe’s largest economy to grow by 0.7% this year, up slightly from 0.6% in 2019, with export growth stagnant in the face of trade conflicts and Brexit.
· Trump says working on a very big trade deal with India, but will take time
President Donald Trump said the United States and India were working on a major trade deal, but he was not sure if it would be completed before the U.S. presidential election in November.
As Trump heads to India on his first official trip on Monday, negotiators have been trying for weeks to put together a limited accord giving the U.S. greater access to India’s dairy and poultry markets and lowering tariffs on other products.
But no breakthrough has yet been announced and a planned trip by United States Trade Representative Robert Lighthizer was canceled, underlining the difficulties the two sides face in narrowing differences ahead of Trump’s visit.
· Oil prices rose on Wednesday, with Brent gaining a seventh straight day, amid broad optimism as new coronavirus cases fell for a second day in China and concerns rose over supply after a U.S. move to cut more Venezuelan crude from the market.
Brent crude LCOc1 was up by 51 cents, or 0.9%, at $58.26 a barrel by 0732 GMT, while U.S. oil CLc1 was up 55 cents, or 1.1%, at $52.60 a barrel.
China is still struggling to get manufacturing going again in the world’s second-largest economy, after imposing stringent city lockdowns and travel restrictions to contain the virus that has now killed more than 2,000 people, but investors remain optimistic that the economic fallout may be short-lived.
S&P Global Ratings said it expected that coronavirus will deliver a “short-term blow” to economic growth in China in the first quarter.
Brent has risen nearly 10% since last week falling to its lowest this year so far, most recently supported by a U.S. decision on Tuesday to blacklist a trading subsidiary of Russia’s Rosneft (ROSN.MM) that President Donald Trump’s administration said provides a financial lifeline to Venezuela’s government.
Reference: Reuters ,CNBC
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