- Rates: US 10-yr yield tests all-time low
Risk sentiment soured during US trading hours with main US benchmarks shedding another 3%. The US 10-yr yield bounced off the all-time low. The front end of the curve outperformed with investors betting on the Fed. Core bonds took quite some advance on the corona theme, but it’s hard to see them lose significant ground in the context of weak stock markets.
- Currencies: Corona headlines risk weighing on the USD
After a pause, US yields declined further triggering some, albeit modest, further losses of the dollar. With US yields already at very low levels, the dollar probably won’t lose a lot of interest rate support anymore. At the same time, the US currency might still face some headwinds from negative headlines on corona as it is still richly valued.
The Sunrise Headlines
- WS went down for the ride, deepening yesterday’s sell-off following an alert from the US CDC. The Dow Jones underperformed (-3.15%). Losses on Asian markets remain limited to 1% this morning.
- The US Centers for Disease Control and Prevention (CDC) warned Americans to begin preparing for an outbreak of the coronavirus that could cause significant disruptions of daily life, though the alert was latter downplayed by the WH.
- The Fed’s Clarida disclosed the central bank is “closely monitoring” the escalating coronavirus epidemic but it is still too soon to gauge the impact on the US economy and whether it requires the Fed to unleash more stimulus.
- Hong Kong unveiled a record budget deficit of 4.8% for 2020/21 as the country boosts cash handouts to permanent residents tax concessions for companies to cushion the blow to the economy from many protests and the coronavirus.
- Ireland’s two dominant center-right parties Fine Gael and Fianna Fail held preliminary talks that could lead to a coalition and freeze out left-wing nationalists Sinn Fein despite surging voters’ support.
- EU trade chief Phil Hogan shared he’s optimistic of trade talks with the US and believes a “mini deal” is within reach. The bloc hopes the thaw out transatlantic tensions following a tit-for-tat spat over aircraft subsidies.
- Today’s economic calendar is little inspiring with second tier data due, leaving trading up to global sentiment. ECB’s Holzmann, Makhlouf and Lagarde are scheduled to speak. Germany and the US tap the bond market
Currencies: Corona Headlines Risk Weighing On The USD
Corona headline risk weighing (slightly) on USD
Dollar trading continues to follow corona headlines. The congruent decline of US yields and the dollar initally took a pause after the sharp risk-off repositioning on Monday. However, US equities, US yields and the dollar took another hit as the US Centre for Disease Control and Prevention (CDC) said a corona outbreak in the US isn’t a question of ‘if’ it will happen but ‘when’. The US risk-off trade resumed with more USD losses as markets brought forward expectation for a Fed rate cut. EUR/USD closed at 1.0882, moving further away from the 1.0778 support. USD/JPY finished at 110.20 (from 110.72). Eco data were again of little signifance for trading.
Losses on Asian equity markets (mostly about 1.0%) are less than in the US yesterday evening, but sentiment remains fragile as markets monitor government action. The yuan (USD/CNY 7.0230) is losing modesty despite broad USD softness. Australia underperforms and AUD/USD is challenging the 11-y low (0.6585) set earlier this week. USD/JPY (110.35) hovers in the low half of the 110 big figure. EUR/USD is holding on to most of yesterday’s gain (1.0875 area).
There are very few eco data in the US and Europe today, expect for US new home sales. The starting point for USD trading today is similar to yesterday. US yields have declined sharply, weighing on the dollar. The pace of the yield decline will probably slow from current low levels. At the same time, the risk of corona related headlines from the US isn’t over and the dollar is still richly valued. Earlier this week, we advocated more erratic (neutral) trading in the likes of EUR/USD or USD/JPY as the corona story develops. We keep that assessment. The technical picture of EUR/USD remains fragile, but the 1.0778 level survived, and the pair is receiving some breathing space. The 1.09 area is first minor resistance. A rebound above 1.0950 would improve the ST picture.
Sterling showed remarkable resilience yesterday despite the global risk-off and the EU taking a rather tough stance at the start of the EU-UK Brexit negotiations next week. There are again few data today. BRC shop prices this morning were soft. We expect more order driven trading in 0.8350/0.450 range with 0.8276 a solid support.
EUR/USD rebounds off 1.0778 support as dollar ‘suffers’ loss of interest rate suppor due to corona.