Safe-havens benefited the most at the expense of the higher-yielding assets in Thursday’s Asian trading, as the risk-off sentiment remained at full steam amid growing anxiety over China’s rapidly spreading coronavirus and its economic impact.
China’s National Health Commission (NHC) said that the coronavirus deaths in the country climbed to 170 while the number of infected patients rose to 7,711. Meanwhile, the US, Japan, Singapore, New Zealand and Taiwan evacuated their nationals from Wuhan and quarantined them back home.
Investors also weighed in the US Federal Reserve’s (Fed) concerns over the US economic outlook, in the face of the mounting risks overseas. The Asian stocks traded with sizeable losses, led by the 5% sell-off in Taiwan stocks, as traders returned from the Lunar New Year holiday break.
Amid souring risk appetite, yields on benchmark 10-year US Treasuries hit a new three-month low of 1.5600% while S&P 500 futures dropped 0.60% towards the session close. Oil prices fell nearly 1%, as worries over the economic fallout from the virus played out on the oil demand growth outlook.
Gold prices advanced to $1580 amid dovish Fed and risk-off action in the global equities. The anti-risk Japanese yen recovered further ground, with USD/JPY back on the offers below the 109 level. Meanwhile, the Swiss franc traded firmer and dragged USD/CHF lower towards 0.9700. The higher-yielding Aussie renewed three-month low at 0.6731 while the Kiwi hit a two-month low just ahead of the 0.6500 level. The Chinese yuan reached six-week low vs. the greenback near 6.9370. USD/CAD battled 1.3200 amid broad-based US dollar weakness and falling oil prices.
Both EUR/USD and cable traded modestly flat, keeping its recent trading range ahead of the German macro releases and the key Bank of England (BOE) base rate decision due later on Thursday.
Main Topics in Asia
WH Adviser Navarro: US will keep tariffs on China even if coronavirus starts hurting growth – CNBC
WH Adviser Kudlow: Further restrictions to US-China airlines are under discussion
Boris Johnson will tell the EU he is prepared to accept post-Brexit border checks – The Telegraph
China’s GDP growth may drop to 5% or even lower in Q1 – Government Economist
BOK Official: Premature to decide on rate cuts to counter virus impact, USD/KRW at seven-week high
Japan’s Suga: 13 unwell who returned to Japan on the 2nd flight from Wuhan
Taiwan Deputy FinMin: Not currently considering stabilization for stock market
HKMA: Will continue to closely monitor any possible impact of the spread of the novel coronavirus
US Pres. Trump forms a 12-member Coronavirus Task Force, Asia risk-off in full swing
Key Focus Ahead
The immediate focus remains on the scheduled speech by the Bank of Japan (BOJ) Deputy Governor Amamiya at 0700 GMT, which will be followed by the Swiss KOF Leading Indicator and German Unemployment data at 0800 GMT and 0855 GMT respectively. Also, of note remains a series from Eurozone confidence gauges and Unemployment data, all of which will drop in at 1000 GMT.
Next of relevance and the likely main event risk for today remains the BOE monetary policy decision accompanied by the minutes of the meeting. The BOE expected to stand pat on the base rate but the voting composition will be closely eyed for fresh cues on the central bank’s next policy move. Governor Mark Carney’s presser will also draw attention for his take on the economic outlook, especially after the EU parliament paved the way for a smooth exit on Friday.
The NA docket also remains eventful, with the German Preliminary Inflation report and US Q4 Preliminary Gross Domestic Product (GDP) likely to hog the limelight at 1300 GMT and 1330 GMT. Later in the NY session, the speech by the Bank of Canada (BOC) official Beaudry will drop in at 2015 GMT.
EUR/USD: Decent bounce from 1.10 still elusive, German data eyed
EUR/USD’s defence of 1.10 has so far failed to entice bulls. A notable bounce looks likely, courtesy of the dovish Federal Reserve. However, dismal German employment and inflation data would weaken recovery prospects.
GBP/USD: Modestly flat above 1.3000 ahead of BOE
GBP/USD remains almost unchanged on a daily basis above 1.3000 while heading into the London open on Thursday. Even if the latest risk-off is weighing on the pair, traders are cautious ahead of the key BOE base rate decision.
BOE Preview: Carney to cause carnage with a hawkish cut? Four scenarios for GBP/USD
There is a 50-50 chance that the BOE cuts rates in its January decision. High uncertainty about this decision and the next one is set to trigger high volatility.
US Fourth Quarter GDP Preview: The fourth quarter marks time
Economic growth expected to be stable for the third quarter in a row. Business investment remains below par, sentiment has improved. Consumer spending is healthy backed by the labor market.