The roller coaster that is U.S. equity markets will continue today. After collapsing on Monday, the DOW regained positive footing in trading yesterday as traders seem to feel good about the actions that were being taken by the administration to combat the Coronavirus. Yesterday the DOW closed up over 1,000 points. However, overnight DOW Futures fell, and as now the US equity markets are expected to fall 1,000 points when the markets open later this morning. Futures contracts were limit down, as trading has been halted. Concern about the economy being able to weather this storm has investors fearing the worst is yet to come. As the possibility of a fiscal package worth more than 1 trillion dollars is being considered, which would include direct payments to citizens as well as financial relief for small business and the airline industry, Treasury Secretary Mnuchin spoke of the possibility that unemployment could reach 20% unless these fiscal packages were put in place. The USD is much stronger this morning against the EUR, GBP, and CAD, while trading sideways against the JPY. As the markets expect the DOW to plunge, US Treasury yields moved higher as the 10-year note moved back above 1%, trading at 1.0100%, while the 30-year bond higher at 1.6324%. U.S. cases of Coronavirus has grown to 6,496, with deaths now at 114.
EUR/USD continues to trade lower as the Coronavirus moves through Europe. As the global economy is expected to weaken, this will place pressure on the EUR, as the Eurozone was already fighting to stay away from recession. Market analysts expect the EUR to continue to trade lower as the single currency had its largest decline since June 2018. Disappointing economic news added to lower consumer confidence has traders in a “EUR selling mode”. Countries across Europe are closing borders, schools and non-essential business in an attempt to slow the spread of the virus. Italy continues to see virus cases grow as there have now been 31,056 cases confirmed with the death toll now at 2,503. France and Spain have committed to issuing bonds and it looks as if Germany will follow suit. While technically oversold, the EUR remains under pressure against the USD and should trade lower through the day.
GBP/USD has also moved lower breaking through strong support levels overnight, nearing 2019 trading lows. UK unemployment released yesterday showed an increase to 17,300 in February, which was lower than expected but this has not given any positive more to the pound. The unemployment rate in the UK rose from 3.8% to 3.9%. UK Chancellor Sunak announced a 330 billion-pound stimulus package, but this has not helped to support the GBP to this point. Adding to the pressure on the pound were comments from PM Boris Johnson that the Brexit transition period would end as scheduled on December 31.
USD/JPY has had a quiet overnight trading range, while trading towards the overnight low in the last few hours, reviving safe-haven trades. While the USD has moved much higher against the other currencies, the JPY remains better bid with traders feeling confident purchasing the currency. After the positive close to the US equity market, Asian equity markets were all lower overnight. As market concerns continue, expect the USD/JPY to test overnight lows in the North American trading day.
USD/CAD continues to move higher, climbing to its highest level since January 2016. Technically the currency pair has broken resistance levels and looks to move higher in the near term. Oil prices continue to fall adding pressure to the loonie as U.S. crude price whereat levels not seen in 17 years. U.S. crude fell to $26.11 per barrel, a little higher than the low of $25.83, a level not seen since May 2003. Brent crude was down $0.37 at $28.05, the lowest since early 2016. Goldman Sachs is forecasting a fall in Brent crude to $20 in the second quarter. This level has not been seen since 2002.
China reported 13 new cases of the virus, down from the 21 cases the day before. The total number of cases now is at 80,894, while the death toll is at 3,237. The Chinese economy is expected to contract in Q1 2020 according to analysts, as industrial production in the first two months has failed by 13.5%. There also was a large contraction in exports, down 18%, as well as fixed asset investments, down 24.5% and retail sales down 23.7%. As activity begins to improve and recover, GDP growth in China is expected to improve in Q2 2020.