· Yen climbs as hopes for G-7 rescue waver
The safe-haven Japanese yen gained on the dollar on Tuesday, as the market tempered hopes for global monetary easing with worries about its scale and efficacy in combating the economic damage from the coronavirus outbreak.
G-7 finance ministers and central bank governors hold a conference call later on Tuesday to discuss measures to deal with the outbreak and its widening economic fallout.
The call, which French and Italian sources said begins at 1200 GMT, comes with markets already betting the U.S. Federal Reserve will lead a round of global monetary easing.
· The dollar fell 0.5% to 107.80 yen and edged lower on the Swiss franc to 0.9576 francs after Reuters reported, citing an unnamed G-7 official, that the G-7 draft statement had no fresh fiscal or monetary pledges.
In a statement, expected on Tuesday or Wednesday, the G-7 countries will pledge to work together to mitigate damage to their economies, without detailing specifics, a source with knowledge of the draft told Reuters on condition of anonymity.
That leaves investors again confronting fundamentals: The virus and the economic slowdown it is causing will hurt, and the damage may no longer be confined to China-exposed assets.
The extra room to respond in the United States, where the Federal Reserve has its benchmark rate between 1.5% and 1.75% compared with zero in Europe, has weighed on the dollar.
But fear has prevented strong gains beyond the euro, which rose as investors unwound carry trades. It last sat at $1.1145, just below its month-high hit overnight.
· The Australian dollar briefly jumped after the Reserve Bank of Australia (RBA) cut interest rates by only 25 basis points, as anticipated, and not more — which markets had priced as a possibility.
But then it fell back to trade just above flat at $0.6549. The New Zealand dollar also gave up intraday gains to sit at $0.6261.
“Assurances of easier liquidity and fiscal support may help stabilise the sentiment in the very short term, but the risk of a higher rate of COVID-19 infections needs to be monitored closely,” said Citi EM Asia economist Johanna Chua in a note.
The Bank of Canada meets to set its policy rate on Wednesday.
CORANAVIRUS UPDATE
· Six people in the Seattle area have died of illness caused by the new coronavirus, health officials said on Monday, as authorities across the United States scrambled to prepare for more infections with an emphasis on increasing testing capacity.
At least four of the six people who died were either elderly or had underlying health conditions or both, Duchin said.
· The U.S. state of Georgia has confirmed its first two cases of the coronavirus disease, said Governor Brian Kemp.
The two patients are from the same household, state officials said. One of them had traveled to Milan, Italy, they added.
· New cases in South Korea surged by 600 as of Tuesday morning, according to the Korea Centers for Disease Control and Prevention.
It also reported six more deaths, bringing the death toll to 28 fatalities for the country. The total number of cases in the country is now 4,812.
· Shanghai will require everyone entering the city from countries with “relatively serious virus conditions” to submit to 14 days of quarantine, an official said on Tuesday.
The southeast province of Guangdong, neighboring Hong Kong, announced similar rules earlier on Tuesday.
· The new coronavirus appears to now be spreading much more rapidly outside China than within, and airports in hard-hit countries were ramping up screening of travelers.
World Health Organization (WHO) chief Tedros Adhanom Ghebreyesus said almost eight times as many cases had been reported outside China as inside in the previous 24 hours, adding that the risk of coronavirus spreading was now very high at a global level.
At a briefing in Geneva, he said outbreaks in South Korea, Italy, Iran and Japan were the greatest concern, but that there was evidence that close surveillance was working in South Korea, the worst affected country outside China, and the epidemic could be contained there.
· Japanese Prime Minister Shinzo Abe said on Tuesday his government was ready to deploy further fiscal stimulus measures if needed to protect the country’s already fragile economy from the negative effects of the coronavirus.
Abe, who has come under fire for his handling of the crisis, has pledged to focus over the next couple weeks on halting the spread of the virus in Japan, where the number of infections has almost reached 1,000. Twelve people have died.
· The spread of the coronavirus in South Korea and Japan could mean a second wave of disruption at Chinese factories after the disease triggered a record contraction in activity last month.
Cases of the flu-like epidemic have jumped in South Korea and Japan, prompting some manufacturers there to partially suspend operations and risking a reduction in the supply of spare parts to factories in China as they restart work.
China, the epicenter of the outbreak, has seen a sharp drop in new infection cases, and authorities have eased some travel restrictions and enabled some businesses to reopen.
But imports from South Korea and Japan play a key role in China’s manufacturing economy, particularly the production and assembly of electronics goods.
· The OECD is not the first to raise the point. The longer-term lessons also came up at a meeting of Group of 20 finance chiefs in February, with some officials warning of the risks of depending largely on complex supply chains in strategic and sensitive sectors.
“We clearly see that we are too dependent on supply from foreign countries and China,” French Finance Minister Bruno Le Maire said Monday on France 2 television. “We will review all our industrial supply chains to see how we can re-localize business in most strategic areas and be sovereign and independent.”
· All eyes on Tuesday's G7 amid risk reset
The focus now turns to the G7 finance minister meeting (1 pm France time), led by Mnuchin and Powell, who will be discussing the coronavirus, although it seems highly unlikely we’ll get a decisive plan other than the group plans to use all available tools. But a united and determined front, which also includes supportive comment from the World Bank and IMF, is a front the markets take solace in - the devil, it seems, is now in the detail and this will offer the degree of confidence that the turnaround in risk has legs.
· G7's draft coronavirus statement does not detail fiscal, monetary response - source
Group of Seven nations are drafting a statement on how they plan to soften the global economic hit of the coronavirus but are not yet making specific calls for new government spending or coordinated central bank rate cuts, a G7 official said on Tuesday.
In the statement, expected on Tuesday or Wednesday, the G7 countries will pledge to work together to mitigate the damage to their economies from the fast-spreading epidemic, the official told Reuters on condition of anonymity due to the sensitivity of the matter.
· United States President Donald Trump on Tuesday called on the Federal Reserve to cut interest rates significantly, saying higher borrowing costs are tough on its exporters and puts the country at a disadvantage.
"Our Federal Reserve has us paying higher rates than many others, when we should be paying less. Tough on our exporters and puts the USA at a competitive disadvantage. Must be the other way around. Should ease and cut rate big," Trump said Twitter.
· RBA cuts Official Cash Rate by 25 bps to 0.50%, AUD/USD jumps
At its March monetary policy meeting on Tuesday, the Reserve Bank of Australia (RBA) cut its official cash rate (OCR) by 25bps to a record low of 0.50%, as they weighed in the coronavirus outbreak risks.
· Apple supplier Foxconn (2317.TW) said it would resume normal production in China by the end of the month and that more than half its seasonal workforce in the country had restarted work following the coronavirus outbreak.
· Oil prices rose for a second day on Tuesday on expectations that central banks are likely to enact financial stimulus to offset the impacts of the coronavirus outbreak and growing optimism that OPEC will order deeper output cuts this week.
Brent crude LCOc1 rose $1.26 per barrel, or 2.4%, to $53.16 per barrel by 0410 GMT. U.S. West Texas Intermediate (WTI) CLc1 rose $1.24, or 2.7%, to $47.99 a barrel.
Brent and WTI have rebounded somewhat over the past two days from a more than 20% drop from their 2020 peak in January that was caused by signs the coronavirus spread has dented fuel demand.
Reference: Reuters ,CNBC,CNN
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