Stocks Rebound on IMF Coronavirus Aid Package, Consolidation Continues

Global stock markets rebounded again as consolidations continue in a wide range. This week’s central bank rate cuts, plus IMF’s USD 50B aid package, could have stabilized market sentiments for now. But the global spread of Wuhan coronavirus is still there, accelerating. It remains to be seen if cases in South Korea (5766) is beginning to top out while there is no sign of containment in Iran (2922). Situation in Europe is worrying, spreading fast among Italy (3089), France (285), Germany (262), Spain (228), Swiss (93), UK (87), Norway (59).

In the currency markets, Australian Dollar is currently the strongest for the week, followed by Euro. Dollar and Canadian are the joint weakest. But there is no special change in technical outlook yet. 1.1239 key resistance in EUR/USD is yet to be broken to confirm medium term bottoming at 1.0777. A break of 1.1038 minor support could indicate rejection by the resistance and turn focus back to 1.0777 low. EUR/GBP is also held below 0.8786 resistance, without confirming bullish reversal. Break of 0.88594 minor support could indicate completion of recent corrective rebound. USD/CAD is staying in range below 1.3464 after yesterday’s recovery. An upside break there is still awaited.

In Asia, currently, Nikkei is up 0.75%. Hong Kong HSI is up 1.36%. China Shanghai SSE is up 1.61%. Singapore Strait Times is up 0.30%. Japan 10-year JGB yield is up 0.009 at -0.131. Overnight, DOW rose 4.53%. S&P 500 rose 4.22%. NASDAQ rose 3.85%. 10-year yield dropped -0.018 to 0.992.

IMF: Global growth in 2020 will be lower than 2.9%

IMF announced a USD 50B aid package for low-income and emerging market countries, to help combat the impact of the Wuhan coronavirus global outbreak. USD 10B in rapid-disbursing emergency financing is available for low-income countries. The rapid financing instrument will provide USD 50B for emerging markets.

Managing Director Kristalina Georgieva said global growth in 2020 will “dip below” 2.9% for 2019. That is, at least 0.4% worse than 3.3% growth projection for 2020 as estimated in January. She warned that “how far it will fall and how long the impact will be is still difficult to predict”.

Bullard: Fed positioned for a fairly large coronavirus outbreak already

St. Louis Fed President James Bullard risks “obviously are rising” that the coronavirus could be “more severe” than expected. Fed policymakers “made the best judgement we could” regarding this week’s surprise -50bps rate cut. He said Fed is now “positioned for a fairly large outbreak…across a large swath of the population.”

As for another rate cut in the scheduled meeting less than two weeks away, Bullard didn’t want to “prejudge” what will happen there. ” It’s a very fluid situation and we are keeping track of things,” he said. “We can keep our options open there.”

Bullard also said it would be very difficult to prepare the new economic forecasts for the March meeting. “We are going to have very wide confidence bands around those” forecasts, he said. “It continues to be a volatile environment and we continue to be very cognizant of how the virus is evolving and how this is effecting the economy. We are tracking this day by day.”

BoC cut interest rate by -50bps to 1.25%, coronavirus a material negative shock

Yesterday, cut overnight rate target by -50bps to 1.25% and warned that “the COVID-19 virus is a material negative shock to the Canadian and global outlooks, and monetary and fiscal authorities are responding.” It “stands ready to adjust monetary policy further if required”.

The central bank added, globally, the coronavirus is a “significant health threat” to people “in a growing number of countries”. Business activity in some regions has “fallen sharply” and supply chains have been “disrupted”. As the coronavirus spreads, ‘business and consumer confidence will deteriorate, further depressing activity.”

For Canada, Q1 will be “weaker than the Bank had expected”. The drop in terms of trade will weigh on income growth. Business investment “does not appear to be recovering”. Rail line blockades, strikes by Ontario teachers and winter storms are also dampening activity.

Suggested readings:

• Bank Of Canada Delivers
• BoC Follows Fed’s Lead With 1/2 Percent Rate Cut
• Bank of Canada Delivers A (Double) Coronavirus Cut
• (BOC) Bank of Canada lowers overnight rate target to 1 ¼ percent

On the data front

Australia trade surplus narrowed to AUD 5.21B in January, above expectation of AUD 4.8B. European calendar is pretty empty today. US will release Challenger job cuts, jobless claims, non-farm productivity and factory orders.

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8619; (P) 0.8682; (R1) 0.8714; More…

A temporary top is formed at 0.8744 in EUR/GBP and intraday bias is turned neutral first. At this point, price actions from 0.8726 are viewed as a consolidation pattern. Larger outlook remains bearish with 0.8786 resistance intact. On the downside, break of 0.8594 minor support will turn bias back to the downside for retesting 0.8276 low. However, sustained break of 0.8786 will indicate near term bullishness for 61.8% retracement of 0.9324 to 0.8276 at 0.8924 next.

In the bigger picture, there are various interpretations on the price actions from 0.9324. It could be the third leg of the pattern from 0.9799 (2008 high). Or it could just be correcting the rise from 0.6935 (2015 low) to 0.9324. But in any case, as long as 0.8786 support turned resistance holds, further decline is expected to 61.8% retracement of 0.6935 to 0.9324 at 0.7848 next. Firm break of 0.8786, however, will bring retest of 0.9324 high.

Economic Indicators Update