Dow Tumbles Into 10% Correction As Futures Crash, 10Y Yields Plunge To Record Lows On Pandemic Panic

  • EUR/NZD/CHF/AUD - The major beneficiaries of the aforementioned US Dollar demise, with the Euro embarking on a firmer recovery rally through 1.0900, 1.0926 resistance and a 1.0937 Fib before pulling up just ahead of 1.0950, a decent 1.0955 option expiry (1 bn) and another Fib at 1.0958. Meanwhile, the Kiwi and Aussie have both pared losses from sub-0.6300/0.6550 lows even though the RBNZ and NZ Finance Minister have warned of near term downside economic effects from the nCoV, with the former estimating a 0.3% point q/q hit to Q1 GDP, and Australia’s PM expressed concerns about a global pandemic that warrants action. In similar vein, the Franc has shrugged off latest dovish SNB commentary to a certain extent, as Usd/Chf slips closer to 0.9700 in contrast to Eur/Chf remaining above 1.0600 on the relative common currency strength noted above.
  • JPY - Volatile trade for the Yen around 110.00 vs the Greenback and within a 120.56-119.96 range against the Euro, as underlying safe-haven demand alongside dovish BoJ remarks propelled the Japanese unit to best levels before key chart support and psychological levels held. However, a raft of looming Japanese economic indicators should provide some fundamental direction, including CPI, jobs, IP and retail sales.
  • CAD/NOK/GBP/SEK - The Loonie is meandering either side of 1.3325 ahead of Canadian current account data and capped by another marked decline in crude, but showing a bit more resilience than the Norwegian Crown that has fallen below 10.2750 vs the Euro in wake of much weaker than forecast retail sales. Conversely, the Swedish Krona has been cushioned by encouraging sentiment indicators and wider trade surplus, with Eur/Sek retreating towards the bottom of 10.6125-5570 extremes. However, Sterling is back under pressure on a combination of bearish factors, as Cable reverses from around 1.2950 to 1.2870 or so and Eur/Gbp tests 0.8500 on heightened no deal Brexit prospects, more month end cross flows and elevated BoE easing expectations rather than actual MPC guidance via Cunliffe.
  • EM - Losses across the board on broad risk aversion, but with the Try also subject to further Syrian related angst as Russia refutes any meeting in early March and the Lira breaches a key mark (circa 6.1600 vs the Usd) that had been providing a buffer.

In commodities, WTI and Brent prices are, once again, subdued on virus demand concerns as cases continue to rise and spread globally; currently, front-month futures are lower by around USD 1.0/bbl and remain just below the USD 48/bbl and USD 52/bbl marks. WTI is currently on track to post a weekly loss in excess of 10%, a loss which would be the largest weekly decline since December 2018 on a percentage term. Crude specific newsflow, away from the virus has been light, with the only pertinent comments stemming from Russian Energy Minister Novak that he wishes to increase co-operation with both Saudi Arabia and OPEC+; further pushing back on the talk of a rift within the cartel. In terms of notably commentary Gazprom have remarked that, because of the lack of clarity over demand, OPEC+ should wait a while longer before making a decision around adding to or extending production; which comes ahead of next week’s OPEC+ gathering. Turning to metals where spot gold is little changed on the day and has seen a much less volatile session than has occurred over the last few weeks; interestingly, the precious metal is currently little moved from the unchanged mark on a weekly basis in-spite of a range just shy of USD 65/oz at present. Elsewhere, copper prices are modestly softer and continued to be afflicted alongside other base metals on demand-side fears.

US Event Calendar

  • 8:30am: GDP Annualized QoQ, est. 2.1%, prior 2.1%
  • 8:30am: GDP Price Index, est. 1.4%, prior 1.4%
  • 8:30am: Core PCE QoQ, est. 1.3%, prior 1.3%
  • 8:30am: Cap Goods Ship Nondef Ex Air, est. 0.0%, prior -0.3%
  • 8:30am: Durable Goods Orders, est. -1.45%, prior 2.4%
  • 8:30am: Durables Ex Transportation, est. 0.2%, prior -0.1%
  • 8:30am: Cap Goods Orders Nondef Ex Air, est. 0.1%, prior -0.8%
  • 8:30am: Personal Consumption, est. 1.7%, prior 1.8%
  • 8:30am: Initial Jobless Claims, est. 212,000, prior 210,000
  • 8:30am: Continuing Claims, est. 1.72m, prior 1.73m
  • 9:45am: Bloomberg Consumer Comfort, prior 65.6
  • 10am: Pending Home Sales MoM, est. 3.0%, prior -4.9%; Pending Home Sales NSA YoY, est. 2.05%, prior 6.8%
  • 11am: Kansas City Fed Manf. Activity, est. -1, prior -1

DB's Jim Reid concludes the overnight wrap

News-flow surrounding the COVID-19 Coronavirus continues to take on a fairly predictable path given all that our expert epidemiologist said earlier this week on the conference call (link here for replay details). It‘a been a 24 hour period where markets initially wanted to buy the dip but after a series of constant mini blows the S&P 500 fell -0.38% last night and futures are down a further -1.34% this morning.

The latest on the virus overnight is that a case has been confirmed in Northern California of unknown origin as the person hadn’t travelled to any foreign country recently or had contact with any of the confirmed cases. This could be a sign that the virus is spreading in a local area. The new case brings the total of known infections in the US to 15, not counting repatriated Americans. Meanwhile, South Korea reported another 334 cases (307 in Daegu) overnight bringing the total to 1,595 with fatalities at 13. Also, as the number of patients rise in Daegu, the city authorities are saying that they don’t have enough hospital beds to treat patients. The US State Department issued a level 3 advisory, the highest being level 4, for South Korea overnight asking Americans to “reconsider” travel to South Korea. In what could be termed as a surprising move, the BoK shied away from cutting rates at its meeting today against expectations of a 25bps cut. President Trump also addressed the US last night and tried to reassure the public that they face limited risk from the spread of the virus but it didn’t feel as bullish as some of his previous pronouncements on the virus.

Risk off is continuing to dominate Asian markets this morning with the exception of China where the bourses are up (CSI +0.81% and Shanghai Comp +0.53%). The Nikkei (-2.09%), Hang Seng (-0.82%) and Kospi (-0.85%) are all down alongside most other indices in the region. As for Fx, the Japanese yen is up +0.30% overnight. Elsewhere yields on 10y USTs are down another -3.4bps to 1.305%. The Australian 10y is also down by -6.4bps to a record low of +0.850%. In commodities, crude oil is extending declines after hitting 13 month lows with brent crude prices down -1.33% this morning while gold prices are up +0.53%.

In other overnight news, the IMF and World Bank said overnight that they may reconsider the meetings scheduled for mid-April in Washington amid the coronavirus’ spread. The meetings typically draw about 2,800 delegates from 189 member countries, plus hundreds of other observers and journalists.

The WHO are now reporting over 80,000 cases worldwide and an increasing number of countries confirming the presence of the virus. Indeed new cases are now higher outside of China than inside. Yesterday we saw the virus spread into new parts of Europe and the last untouched continent (if you exclude Antarctica). South America saw its first confirmed case in Brazil, where an older man who had just returned from a trip to Northern Italy tested positive. Greece and North Macedonia similarly saw their first cases yesterday following a pair of women returning to their respective homes from a recent trip to Italy. Staying with Italy many of the Serie A matches this weekend will be played behind closed doors with no fans and the Ireland vs. Italy Six Nations rugby game for next weekend was be called off. Italy now has 453 cases with 12 deaths. The ECDC said in its risk assessment report yesterday that “It is likely that Europe will see similar developments like in Italy, varying from country to country". Germany’s Health Minister Jens Spahn said yesterday that Germany is at the beginning of a coronavirus epidemic after new cases sprung up in the country which can no longer be traced to the virus's original source in China. Germany has 27 confirmed cases now vs. 16 the day before.

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