Focus somewhat turns from stock markets to currencies today. Major global indices are staying in rather tight range today, based on recent volatility. Fiscal and monetary measures from major central banks and governments are providing little support to sentiments, as coronavirus pandemic continues to worsen. Dollar jumps broadly today, followed by Canadian and then Yen. Australian is suffering steep selling, breaking 0.6 handle against the greenback. European majors are the next weakest.

Technically, EUR/USD’s break of 1.1055 temporary low suggests resumption of fall from 1.1496. Further decline should be seen to retest 1.0777 low. USD/CHF is pressing 0.9613 support turned resistance and break will add to the case of bullish reversal. GBP/USD is also heading to retest 1.1958 low. AUD/USD’s selloff could further accelerate to next projection level at 0.5716 if current 0.6008 (2008 low) is firmly taken out.

In other markets, DOW open mildly high, trading up around 100 pts. In Europe, FTSE is down -0.64%. DAX is down -0.66%. CAC is is down -0.25%. German 10-year yield is up 0.047 to -0.413. Earlier in Asia, Nikkei rose 0.06%. Hong Kong HSI rose 0.87%. China Shanghai SSE dropped to -0.34%. Singapore Strait Times dropped -1.65%. Japan 10-year JGB yield dropped -0.0035 to 0.007.

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US retail sales dropped -0.5% mom, ex-auto sales dropped -0.4% mom

US retail sales dropped -0.5% to USD 528.1B in February, much worse than expectation of 0.2% rise. Ex-auto sales dropped -0.4% mom, versus expectation of 0.3% mom. Ex-gasoline sales dropped -0.3% mom. Ex-auto, ex-gasoline sales dropped -0.2% mom. Industrial production rose 0.6% mom in February verus expectation of 0.5% mom.

German ZEW dropped -58.2 pts to -49.5, largest fall on record

German ZEW economic sentiment dropped sharply from 8.7 to -49.5 in March, way worse than expectation of -23.4. The -58.2 pts decline was the largest since the survey started back in December 1991. That’s also the lowest since 2008 financial crisis. Current situation index dropped to -43.1, down from -15.7, missed expectation of -25.0. For Eurozone, ZEW economic sentiment dropped -59.9 pts to -49.5. Current situation index dropped -38.2 to -48.5.

“The economy is on red alert. The financial market experts currently expect to see a decline in real gross domestic product in the first quarter, while also considering a further drop in the second quarter to be very likely. For the whole of 2020, the majority of experts currently expect a decline in real GDP growth of approximately one percentage point as a result of the corona pandemic,” comments ZEW President Achim Wambach.

UK OBR: Coronavirus is like a wartime situation

Robert Chote, head of the Office for Budget Responsibility, said to the UK parliament that the government needs to unveil a big stimulus package that will help all businesses to counter the coronavirus impact.

He noted, “the lesson of earlier crises is that one sector’s problems in a situation like this quickly become every other sector’s problems.” Also, “this is not a time to be squeamish about one off additions to public sector debt. It’s more like a wartime situation,” he added.

Sir Charlie Bean, OBR member and former BoE deputy governor, said coronavirus hit “ought to be different from the financial crisis. ” “There isn’t a fundamental structural problem in the economy that needs correcting, at least in the most part.”

UK unemployment rate edged higher to 3.9%, wage growth mixed

UK unemployment rose to 3.9% in the three months to January, slightly above expectation of staying at 3.8%. Average earnings excluding bonus grew 3.1% 3moy, slowed form 3.2% and missed expectation of 3.3%. Average earnings including bonus, on the other hand, rose 3.1% 3moy, rose 2.9% and beat expectation of 3.0%.

RBA: Significant coronavirus effect on economy the more realistic scenario

Minutes of March 3 RBA meeting noted that “it was becoming increasingly clear that COVID-19 would cause major disruption to economic activity around the world”. The recent outbreak outside of China ” raised the prospect of a broader and more extended disruption to the global economy”.

The global development “was having a significant effect on the Australian economy, particularly in the education, transport and tourism sectors”. Uncertainty was also likely to “affect household spending and business investment in coming months.” Q1 GDP was likely to be “noticeably weaker than previously expected”.

Board members have considered a “number of scenarios” regarding monetary policy response to coronavirus outbreak. If the outbreak would be contained in the very near future, “maximum effect” of further stimulus would be felt in the “recovery phase”. However, this scenarios was considered “very unlikely, with the more realistic scenario being that the outbreak would have a significant effect on the Australian economy.”

RBA cut interest rate by 25bps to 0.50% at that meeting. Earlier on Monday, it indicated that there will be additional measures to be announced this coming Thursday. Markets generally expect another rate cut to bring the benchmark rate down to 0.25%.

New Zealand launches NZD 12.1B fiscal stimulus to cushion coronavirus impacts

New Zealand government announced a massive NZD 12.1B stimulus program to support the economy at the time of disruptions by coronavirus pandemic. That’s equivalent to 4% of the country’s GDP. The package includes NZD 2.8B in income support, NZD 5.1B in wage subsidy support, NZD 2.8B in business tax changes, NZD 500m support for aviation sector and NZD 600m boost for health services.

Finance Minister Grant Robertson said the economy is expected to fall -1% by Q1 if 2021 if the package is implemented, better than -3% without the support. He also told the parliament that recession was “almost certain” in New Zealand”. “We will have an extended period of deficits and our debt as a country will have to substantially increase,” he added.

AUD/USD Mid-Day Report

Daily Pivots: (S1) 0.6030; (P) 0.6168; (R1) 0.6258; More…

AUD/USD’s fall extends to as low as 0.5981 so far today and breaches 0.6008 key support. We’d be cautious on recovery from this level. On the upside, break of 0.6186 minor resistance will turn bias back to the upside for rebound. However, sustained break of 0.6008 will pave the way to 161.8% projection of 0.7031 to 0.6433 from 0.6684 at 0.5716.

In the bigger picture, AUD/USD’s decline from 0.8135 (2018 high) is still in progress. It’s part of the larger down trend from 1.1079 (2011 high). Prior rejection by 55 week EMA affirms medium term bearishness. 0.6008 (2008 low) is already met. Sustained break will target 0.5507 long term fibonacci projection level. Outlook will stay bearish as long as 0.6670 support turned resistance holds, even in case of strong rebound.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
00:30 AUD House Price Index Q/Q Q4 3.90% 3.90% 2.40%
00:30 AUD RBA Minutes
04:30 JPY Industrial Production M/M Jan F 1.00% 0.80% 0.80%
06:45 CHF SECO Economic Forecasts
09:30 GBP Claimant Count Change Feb 17.3K 6.2K 5.5K -0.2K
09:30 GBP Claimant Count Rate Feb 3.50% 3.40%
09:30 GBP ILO Unemployment Rate (3M) Jan 3.90% 3.80% 3.80%
09:30 GBP Average Earnings Excluding Bonus 3M/Y Jan 3.10% 3.30% 3.20%
09:30 GBP Average Earnings Including Bonus 3M/Y Jan 3.10% 3.00% 2.90%
10:00 EUR Germany ZEW Economic Sentiment Mar -49.5 -23.4 8.7
10:00 EUR Germany ZEW Current Situation Mar -43.1 -25 -15.7
10:00 EUR Eurozone ZEW Economic Sentiment Mar -49.5 35.4 10.4
12:30 CAD Manufacturing Sales M/M Jan -0.20% -0.60% -0.70%
12:30 CAD Foreign Securities Purchases (CAD) Jan 17.0B -12.78B -9.57B
12:30 USD Retail Sales M/M Feb -0.50% 0.20% 0.30% 0.60%
12:30 USD Retail Sales ex Autos M/M Feb -0.40% 0.30% 0.30% 0.60%
13:15 USD Industrial Production M/M Feb 0.60% 0.40% -0.30% -0.50%
13:15 USD Capacity Utilization Feb 77.00% 77.00% 76.80% 76.60%
14:00 USD Business Inventories Jan 0.00% 0.10%
14:00 USD NAHB Housing Market Index Mar 74 74

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