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Daily Brief

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Stepping into a bear market

USD

US equity markets fell over 1400 points yesterday, falling into bear market conditions after an 11-year bull market run. A bear market occurs when the market has a 20% decline from its all-time highs. President Trump addressed the nation last evening and announced that travel from Europe will be suspended for 30 days, beginning Friday. He also announced financial relief for workers who are ill, caring for others, or are quarantined. However, these announcements apparently did not satisfy investors as DOW Futures immediately were sold off and now are pointing towards an 1100 point lower opening later this morning. The USD is mixed in overnight trading, stronger against the EUR and GBP, but lower against the JPY and CAD. US Treasury yields are lower this morning, with the 10-year note trading at .7678%, while the 30-year bond was trading at 1.2439%.

EUR

The ECB announced that they have left rates unchanged at -0.50%, but will allow banks to run lower capital ratios because of the Coronavirus. The EUR moved higher after the news but has once again fallen closer to overnight lows. The ECB announced the following measures to support bank lending. They will expand its quantitative easing (QE) program by 120 billion EUR. The follows comments made earlier this month by ECB President Christine Lagarde that the bank was “ready to take appropriate and targeted measures” to deal with the economic impact of the virus. There were many analysts that expected a QE move rather than a rate cut move since EUR rates are negative and the expected move would have only been 10 bps.

GBP

GBP/USD also trading near session lows, as Prime Minister Boris Johnson calls for an emergency meeting to discuss the virus crisis. The GBP has been on a bit of a roller coaster over the last 24 hours, initially weakening after the Bank of England cut rates by 50 bps, then moving higher as US equity markets fell. Overnight traders sold the pound. Sterling could see some support against the EUR later this morning after the ECB rate decision.

JPY

USD/JPY trading in the middle of its overnight range as traders' concerns over the Coronavirus keep “safe-haven” trades at the forefront. Asian equity markets followed the US markets lower as all ended up lower during trading on Thursday. The Nikkei 225 closed lower and is also in bear market territory, closing more than 20% lower from its 52-week high. 

CAD

Oil prices continued to fall in early Thursday trading after the US banned travel from Europe. USD/CAD trading off its overnight highs, but still expected to move higher as the Canadian Dollar is feeling the pressure as a commodity-based currency. Brent crude is trading at $33.58, down $2.26, while US crude is also lower, trading at $30.92, down $2.06. Both oil prices have fallen almost 50% from their highs in January. Expectations that the BOC will lower rates again in the near future, has put pressure on the loonie, as analysts look for further cuts in the coming months, putting the overnight rate at 0.50%, with the possibility of moving even lower to 0.25%, a level not seen since 2009/2010. 

CNY

China announced 15 new confirmed cases of the Coronavirus, with 11 new deaths. The total number of cases in China is now 80,793, with the death toll at 3,169. As cases rise around the world, the number of cases in China seems to be easing. A spokesman for the China National Health Commission said the country has passed the “peak” of the epidemic.

USD: US equity markets expected to open lower after President Trump speech overnight.

USD: US equity markets expected to open lower after President Trump speech overnight.

EUR: ECB leaves rates unchanged.

EUR: ECB leaves rates unchanged.

GBP: GBP range bound after BOE cuts rates yesterday.

GBP: GBP range bound after BOE cuts rates yesterday.

JPY: Safe haven JPY purchase continue.

JPY: Safe haven JPY purchase continue.

CAD: Oil prices fall and so does the loonie.

CAD: Oil prices fall and so does the loonie.

CNY: Coronavirus cases in China begin to ease.

CNY: Coronavirus cases in China begin to ease.

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