US Non-Farm Payroll for February rose by 275,000 vs the estimated 175,000 and the unemployment rate improved to 3.5% from 3.6%. Not only did the February number beat expectations but the December and January numbers were revised upwards by a total of 243,000. December’s number moved from 147,000 to 184,000 and the January number went from 225,000 to 273,000. The three-month average improved to 243,000 compared to the average monthly gain in 2019 of 178,000. Dow Futures slightly improved after the release but as the opening bell rings, the initial move in the Dow is down 750 points. The Coronavirus fear is driving the market as US Treasury yields have fallen below 0.70% before bouncing back. With the virus continuing to weigh on the USD, EUR and GBP trading close the day’s high and the USD/JPY is testing lows not seen for a while. After the surprise rate cut this week, which was the first one since the Great Recession of 2008, many observers expect another cut on March 18. While the US economy remains strong, especially when compared to the rest of the world, the US economy still has a lot to lose.
EUR/USD is much higher this morning reaching levels not seen since August 2019, as falling yields and equities in the US, aid the single currency. The spread of the disease in the US has aided the EUR, as experts expect the number of cases to rise in the coming days. The disease does continue to spread in Europe as Italy has confirmed 148 deaths, while those infected in Germany have moved past 500. Traders seem to be ignoring this and focusing on the problems in the US. Expect the EUR to test resistance levels later today and should move higher if the US equity market falls as expected.
GBP/USD also moving higher overnight and currently testing resistance levels as well. The move higher in the pound is not as strong as the other currencies as Brexit talks continue to weigh on the currency. Earlier this week, it seemed that the Bank of England would hold off on any interest rate moves, but now analysts expect the central bank to lower rates by 25 bps when they meet later this month on March 26 Analysts at Goldman Sachs are calling for a 50 bps cut, which could be an effect the move of the Fed the week before. Look for GBP to remain better bid against the USD.
USD/JPY continues to fall eclipsing 6-month lows, breaking through key support levels overnight as traders move out of risk and into safe-haven trades. Lower US Treasury yields are also boosting the demand for JPY. The continued bearish USD scenario is expected to continue as further pressure will see USD/JPY reach new lows. A disappointing NFP number will see a new wave of USD selling.
The Canadian Dollar is trading lower this morning, as USD/CAD is near its overnight highs. Speaking yesterday, Bank of Canada Governor Poloz said the Canadian economy could be seriously tested by the Coronavirus, depending on the severity and duration of the disease. He also said that it is important for central banks to add to consumer and business confidence by helping the economy bridge the situation. Adding to the Canadian Dollar’s woes, oil prices are lower this morning as OPEC and associated producers were calling for a continued cut in output. Brent Crude was trading at $49.51 per barrel, 48 cents lower and West Texas Intermediate was trading at $45.52, down 38 cents.
According to the Asian Development Bank, in a worst-case scenario, the world will lose -0.4% of GDP, while China will lose -1.7%. Virus cases in China continue to stabilize as only 143 new cases were reported yesterday. The amount of cases in China now is at 80,552, while the death total is at 3,042. South Korea and Italy remain the most infected countries to this point, but the virus is spreading through Europe, with cases growing in each country.