The recovery in the risk sentiment was the main theme in Asia this Monday after the initial negative reaction at open, in light of Friday’s rout and terrible official Chinese Manufacturing PMI release. The risk rebound could be mainly associated with brewing speculation of coordinated stimulus efforts by the global central bankers to cushion the blow of the coronavirus outbreak on the economy.
However, markets continued to remain unnerved amid looming virus risks and on reports that North Korean fired an unidentified projectile. Also, Bloomberg report that the Brexit trade talks could break down kept the investors on the edge.
The Asian stocks rebounded in tandem with the Wall Street futures, which helped USD/JPY stage a solid comeback to 108.38 from a five-month low of 107.25. The further upside remained capped by the steep decline in the US Treasury yields induced broad dollar weakness.
The Aussie also bounced-back above the 0.6500 level despite increased calls for an RBA rate cut on Tuesday while the Kiwi failed to capitalize on the recovery momentum and traded with sizeable losses around 0.6230 region. Meanwhile, USD/CAD fell sharply and breached 1.3350, in response to over 3% jump in oil prices and weaker US dollar.
The traditional safe-haven gold managed to recover ground above 1600 after Friday’s massive slump triggered by margin calls. Another safety bet, the Swiss franc, traded better bid vs. the greenback around 0.9650 region.
Main topics in Asia
US bank lobby economist predicts global rate cut coming … this Wednesday – Reuters
Global coronavirus death toll passes 3,000 with new China count
Stats NZ: Exports to China fell 8% y/y in the 4 weeks to Feb 23
BOJ’s Kuroda: Global financial and capital markets have been unstable recently due to coronavirus spread
Caixin China PMI Mfg (Feb): 40.3 (est 46, prev 51.1)
South Korea confirms 476 new coronavirus cases, 2 new deaths
Ex-RBA’s Edwards: No RBA rate cut on March 3
US reports second coronavirus death – CNN
China Beige Book: Coronavirus epidemic to lead to a contraction in Q1 GDP
NZ PM Ardern: Will extend the inbound travel ban by a further seven days
Australian Treasurer Frydenberg: Fiscal response to coronavirus will be “considered”, “responsible” and “targeted”
US VP Pence to hold coronavirus meeting at 2200 GMT on Monday
S. Korea Defence Ministry: North Korea fired an unidentified projectile
Brexit trade talks could break down within just weeks – Bloomberg
Key focus ahead
The final readings of the Euro area and UK Manufacturing PMI will offer some fresh trading impetus to the traders in the European session, as the risk-recovery is likely to extend amid looming coronavirus risks and global stimulus expectations.
In the NA session, the US ISM Manufacturing PMI report, due at 1500 GMT, will hog the limelight. Markets will also pay attention to the US Markit Manufacturing PMI and Construction Spending data ahead of New Zealand’s Terms of Trade Index release at 2145 GMT.
All eyes will also remain on the US Vice President Pence’s briefing on the coronavirus outbreak in the US at 2200 GMT. The coronavirus headlines will continue to remain the main market motor, as attention shifts towards the Reserve Bank of Australia’s (RBA) Interest Rate Decision due to be announced on Tuesday.
EUR/USD: Risk recovery could weigh over the common currency
EUR/USD may come under pressure as the risk sentiment is looking to stabilize on speculation about coordinated policy action by major central banks. The risk recovery could continue in Europe on dovish central bank expectations.
GBP/USD: Off 20-week low, UK PMI, Brexit deal negotiations in focus
GBP/USD holds on to recovery gains from the multi-month low. The EU-UK policymakers will officially begin the post-Brexit trade deal negotiations in Brussels. UK/US PMIs, coronavirus headlines continue to offer intermediate moves.
US Manufacturing PMI February Preview: IS this what is meant by going viral?
Sentiment expected to remain positive despite China. Business investment was unexpectedly strong in January. Equity losses and the Fed on the near term horizon.
RBA Preview: 25bp cut in the bag, 50bp cut possible, or a surprise hold and subsequent rally in AUD
RBA rate cut expectations shoot through the roof following Chinese data. Coronavirus and bush fires a factor for consideration by the RBA. RBA is reluctant to cut interest rates, but a coordinated measure by global central banks could be on the cards.