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DAILY BRIEF

 

 

The Daily Brief is a free email sent out each morning with information about overnight market movements and insights into the issues of the day. The brief is free and will help you keep an up-to-the-minute eye on the currency markets.

 

24 / 02 / 20

 

LONDON OFFICE

 

British Pound

Reuters: Sterling rose against the dollar and euro on Friday after UK purchasing managers indexes showed British factories posted the fastest rise in output for 10 months. The ‘flash’ early readings of the IHS Markit/CIPS UK Purchasing Managers’ Index (PMI) showed the expansion of Britain’s vast services sector slowed slightly this month, but this was cancelled out by an unexpected upturn in manufacturing. Sterling hit the day’s high of $1.2928 against a broadly weaker dollar, up nearly 0.4%. Against the euro, the pound climbed back to the session’s high of 83.68 pence.

 

US Dollar

Reuters: Asian currencies slid on Monday as the rapid spread of the coronavirus outside China drove fears of a pandemic and sent investors flocking to gold and the dollar for safety. Italy, South Korea and Iran posted sharp rises in infections over the weekend. South Korea now has more than 760 cases, Italy more than 150 and Iran 43 cases. The World Health Organization said it was worried about the growing number without any clear link to the epicentre of the outbreak in China. “The omens are not particularly good today,” said Ray Attrill, head of FX strategy at National Australia Bank in Sydney. “The presumption was that we would see intermediate supply chains quickly reconnected and I think the market’s had to go through a period of questioning that logic.” The Chinese, Australian, New Zealand, Singapore and Taiwan currencies were all on the back foot, with the Aussie carving a fresh 11-year low in early trade.


The Korean won plunged nearly 1% to a six-month low. Political turmoil in Malaysia added pressure to the ringgit and sent it 0.6% lower to its weakest since September. Yet risk aversion, which also saw stocks tumble and gold and bonds rise, offered surprisingly little support to the yen. After partially recovering last week’s drop on Friday, it traded flat at 111.55 per dollar as Asian investors discount its safety value owing to Japan’s virus exposure. “The market reaction to the coronavirus appears to be evolving, beginning to differentiate the currencies vulnerable to the virus from the rest,” Barclays analysts said in a note. “U.S. dollar assets provide relative attractiveness,” they wrote. “In fact, our economists forecast no impact on U.S. growth from Covid-19, with relatively few domestic incidents and a low dependency on China’s economy.” Against a basket of currencies, the dollar crept back toward an almost three-year peak touched last week, before soft economic data knocked it from its perch on Friday. It was firmer against the euro at $1.0827 and pound at $1.2946. It last traded at $0.6613 per Australian dollar $0.6324 per kiwi. The coronavirus has killed more than 2,400 people in China, which also accounts for 98% of global diagnoses. Four Chinese provinces on Monday lowered their emergency response measures as domestic containment efforts seem to be working. However, the weekend’s spread outside of China appears to have caught authorities off-guard. Italy has halted the carnival of Venice, shut schools, and sealed off affected towns across its wealthy north, but is struggling to find out how and where the virus’ spread began. South Korea is on high alert and battling to stem steep rises in infections - all adding to the already massive disruption to the world’s economy. “From here on, a lot will depend on how fast China can resume production and contain negative implications for supply chains and global economic growth,” said Stephen Innes, Asia Pacific Market Strategist at AxiCorp.

 

South African Rand

BDL: The rand reached its lowest level in more than four months on Friday as the rising death toll from the coronavirus curbed global risk sentiment. The rand has been the worst performing among emerging-market currencies tracked by Bloomberg over the past month, down by 4.36%, followed by the Chilean peso down 4.14%. The currency’s performance has been affected by the global risk-off sentiment due to the spread of the coronavirus as well as concerns about SA’s economic trajectory ahead of the national budget speech next week.  Asian markets are sharply lower as fears rattle investors again, while local focus is on Wednesday’s budget. The JSE faces a day of pressure on Monday morning, with Asian markets selling off sharply due to a sharp rise in coronavirus cases in South Korea and Italy. France has warned that the viral outbreak is hurting its tourism industry, while Italy is cancelling football matches and imposing quarantine measures amid an outbreak.


Of concern is that cases are showing up in people with no connection with China, AxiCorp chief Asian markets strategist Stephen Innes said in a note. This suggests “things are about to get extremely problematic, and market conditions could get exponentially worse this week”. SA markets face a crucial test on Wednesday when finance minister Tito Mboweni will deliver the budget speech, something that may determine SA’s economic future, as well as the status of the last remaining investment grade credit rating from Moody’s Investors Service. In morning trade on Monday the Hang Seng fell almost 1.5% while the Shanghai composite was down 0.34%. The South Korean Kospi index fell 3% at one point. Tencent, of which Naspers is the largest single shareholder, was down more than 2% in Hong Kong. Gold rose 1.08% to $1,660.94 an ounce while platinum slipped 0.29% to $967.15. Brent crude slumped 2.41% to $57.04 a barrel. The rand weakened 0.46% to $15.06 a dollar. It’s a quiet day from a data perspective, while renewed risk aversion is likely to cause emerging markets to come under pressure, Peregrine Treasury Solutions treasury partner Bianca Botes said in a note. The budget speech and coronavirus is likely to hog the headlines this week. On Monday chemical group Sasol is expected to release its half-year results, and it is likely to give an update on cost overruns at its embattled Lake Charles Project in the US. The company also faced an explosion at that facility in January.

 

Global Markets

Reuters: Global shares and oil slid on Monday while safe-haven gold surged as the spread of the coronavirus outside China darkened the outlook for world growth with infections and deaths rising in South Korea, Italy and the Middle East. South Korea put the country on high alert while the number of infections jumped to over 700 and deaths rose to seven. In Italy, officials said a third person infected with the flu-like virus had died, while the number of cases jumped to above 150 from just three before Friday. Iran, which announced its first infections last week, said it had confirmed 43 cases and eight deaths, with most of the infections in the Shi’ite Muslim holy city of Qom. Saudi Arabia, Kuwait, Iraq, Turkey and Afghanistan imposed travel and immigration restrictions on the Islamic Republic. In a sign of panic, U.S. stock futures were sold with E-minis for the S&P500 falling 1.2% in early Asian trade while Nikkei futures slipped over 2%. EuroStoxx 50 futures declined 1.5% while futures for London’s FTSE skidded 1%.


Asian share indexes were also a sea of red. Australia's benchmark index slid 2.2% while New Zealand was about 1.3% lower. South Korea's KOSPI index fell about 3%. Chinese shares opened down with the blue-chip CSI300 index easing 0.6%. That left MSCI’s broadest index of Asia-Pacific shares outside Japan off 1.6% at its lowest since early February. Japanese markets were closed for a public holiday. “There is lots of bad news on the coronavirus front with the total number of new cases still rising,” AMP chief economist Shane Oliver wrote in a note. “Of course, there is much uncertainty about the case data, new cases outside China still looks to be trending up and the economic flow on has further to go with the Chinese economy likely to have contracted in the March quarter.” The virus has killed 2,442 people in China, which has reported 76,936 cases, and slammed the brakes on the world’s second largest economy. It has spread to some 28 other countries and territories, with a death toll of around two dozen, according to a Reuters tally. Economists have roundly downgraded growth forecasts for China as well as the world as travel restrictions and lockdowns have already hit tourism, supply chain and factory output in a number of countries. Oxford Economics estimated world economic output growth would fall to nearly zero in the first half of 2020 if the coronavirus outbreak became a global pandemic. In commodities, oil prices slid as investors fretted about crude demand being pinched by the impact of the coronavirus outbreak, while leading producers appeared to be in no rush to curb output. Brent crude slumped 3%, or $1.77, to $56.72 a barrel while U.S. crude dropped 2.7%, or $1.48, to $51.9 a barrel. U.S. gold futures climbed 1% to $1,665.1 an ounce. Spot gold jumped to a seven-year high of 1,678.58 after marking its biggest weekly gain last week since early August.

HONG KONG OFFICE

 

British Pound

FXStreet: GBP/USD registers another failure to cross 100-day SMA. A short-term falling trend line adds to the resistance. Bearish MACD signals keep sellers hopeful amid a lower high formation since the month’s start. GBP/JPY stays mildly weak to 1.2950 during the Asian session on Monday. In doing so, the pair fails to extend Friday’s bounce while staying below 100-day SMA. Not only multiple failures to cross 100-day SMA but a short-term descending resistance line portraying the lower high pattern since the month’s start, as well as bearish MACD, also favor the sellers.

 

On the upside, a downward sloping trend line since February 03, at 1.2995 will challenge buyers beyond a 100-day SMA level of 1.2960. If at all the quote manages to rise past-1.2995, also clears 1.3000 round-figure, it can then aim for February 13 top surrounding 1.3070.

 

US Dollar

Reuters: Virus spread beyond China spurs new round of dollar buying. Asian currencies slid on Monday as the rapid spread of the coronavirus beyond China drove fears of a pandemic and sent investors flocking to gold and the dollar for safety. Italy, South Korea and Iran all posted sharp rises in infections over the weekend. South Korea now has more than 600 cases, Italy more than 150 and Iran 43 cases. After partially recovering last week’s tumble on Friday, it traded flat at 111.55 per dollar as Asian investors discount its safety value owing to Japan’s virus exposure.

 

“The market reaction to the coronavirus appears to be evolving, beginning to differentiate the currencies vulnerable to the virus from the rest,” Barclays analysts said. “U.S. dollar assets provide relative attractiveness,” they wrote. “In fact, our economists forecast no impact on U.S. growth from Covid-19, with relatively few domestic incidents and a low dependency on China’s economy.” Against a basket of currencies, the dollar headed back toward an almost three-year peak touched last week, before soft economic data knocked it from its perch on Friday. It was a touch firmer on the euro at $1.0837 and pound at $1.2948.

 

Japanese Yen

FXStreet: USD/JPY remains on the back foot after Friday’s U-turn from the 10-month’s top. Off in Japan could keep traders searching coronavirus headlines for fresh impulse. USD/JPY declines to 111.45, with the intra-day low of 111.28, amid the initial Asian session on Monday. That said, the pair stays under pressure as coronavirus pushes traders towards risk-safety whereas the pullback in the US dollar after Friday’s US PMI exerts additional downside pressure on the quote. The fourth quarter (Q4) GDP figures renewed worries of recession inside the world’s third-largest economy while the fact that Japan is the biggest victim of coronavirus outside China (while counting cases of the Diamond Princess cruise) also keeps USD/JPY traders worried.

 

FXStreet’s Ross J Burland mentions that the quote is nearing a familiar territory while spotting the monthly chart: The 2015-2020 downtrend has been taken put and bulls are controlling with a weekly close above 110.31. Bulls can target a run beyond 112.50s for a move towards 114.55, 2018 high. 

 

Global Markets

Reuters: Global shares and oil extended losses on Monday while safe-haven gold soared as the spread of the coronavirus outside China accelerated with infections jumping in South Korea, Italy and the Middle East, in a worrying new development in the outbreak. South Korea put the country on high alert after the number of infections surged to over 600 with six deaths. In Italy, officials said a third person infected with the flu-like virus had died, while the number of cases jumped to above 150 from just three before Friday. In a sign of panic, E-minis for the S&P500 dropped 1% in early Asian trades while Nikkei futures slipped more than 1% too. Australia’s benchmark index slid 1.6% while New Zealand was down about 1%. South Korea’s KOSPI index fell 2.2%.

 

The dollar fell for a second straight session on Monday against the yen to be last at 111.48. The Australian dollar, considered a liquid proxy for China plays, was down 0.4% as it languished near an 11-year low. The euro eased a tad to $1.0836. That left the dollar index slightly higher at 99.430. Analysts expect the Korean won to slump against the dollar as one of the favorite risk proxies for investors. “Whether this proves to be a driver of more mainstream FX pairs, such as AUDJPY and AUDUSD is yet to be seen, although AUDUSD looks the better short on the weekly chart,” Pepperstone’s Weston said.

 

Oil prices slid as investors fretted about crude demand being pinched by the impact of the coronavirus outbreak, while leading producers appeared to be in no rush to curb output.

 

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