Markets Nowadays: COVID-19 spreads additional core bond yields fall


Today’s podcast

Overview: Losing my edge

  • COVID-19 anxiousness grows outdoors and inside China
  • US PMI prints disappoint – Solutions now in contractionary mode
  • UST Curve bull flattens – 30y Bond hits new record low
  • US and EU equities close the week reduced – Tech stocks lead decline
  • USD momentum runs out of steam – SEK leads gains against USD
  • AUD closes above 66c aided by broad USD weakness
  • China’s Prime Brass promises flexibility in Monetary and Fiscal Policy
  • The week ahead: COVID-19 major concentrate, AU Q4 GDP partials, German IFO, US Customer Self-confidence followed by PCE on Friday and China’s PMI on the weekend


I’m losing my edge

I’m losing my edge to the little ones from France and from London – LCD Soundsystem


COVID-19 anxiousness moves beyond China and requires on a international dimension with rises in reported infections from South Korea to Italy, China also reported a spike in situations more than the weekend. Information on Friday evening didn’t assist sentiment either with US PMI prints disappointing, the Solutions sector is now in contractionary mode. UST Curve bull flattens with the 30y bond making  a new low, the NASDAQ led the decline in US equities whilst the USD lost some of its edge underperforming across the board. AUD briefly trades with a 65c deal with, but opens the new week just above 66c.

COVID-19 news stay front and centre in investors’ minds with a jump in news situations reported outdoors China, from South Korea, the Middle-East and Italy. News more than the weekend will not have helped sentiment as we start the new week, with the quantity of situations surging to more than 600 in South Korea and more than 130 in Italy. Extraordinary containment measures are becoming implemented, which will improve the hit to the international economy. Worryingly also, China reported 630 new situations in Hubei with new 96 deaths, correctly denting the current narrative that China’s containment have been displaying to be successful.

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In addition to COVID-19 anxiousness

Information on Friday evening didn’t assist the result in either. Japan’s manufacturing PMI sank to its lowest level in extra than seven years to 47.six vs 48.eight previously whilst the service PMI fell back into contractionary territory from 51 to 46.7. PMI information in Europe was improved than anticipated with  the German Manufacturing PMI printed at 47.eight vs 44.eight anticipated. So a bit improved, but nonetheless in contractionary mode. All round, there are indicators of EC domestic demand and activity is discovering a base, but exports stay challenged and clearly the complete influence from COVID-19 to date  is but to be reflected in the information.

The above was just a prelude to the major information disappointment on Friday, each US PMI indices printed beneath expectations (see information beneath) with the Solutions PMI falling to 49.four in February vs. at 53.four print anticipated. The Markit PMI US composite, an indicator typically ignored by the industry provided the preferred ISM indicators, fell by almost four points to 49.six. This was the lowest level in more than six years and driven by the solutions sector, questioning the insulation of the US economy from the influence of COVID-19. Worth noting right here, nonetheless,  that the ISM Non-Manufacturing survey has a bigger sample, it is the preferred index for the US, it was at 55.five in January and the Markit PMI survey also has a bias for globally concentrate firms rather than domestic. The February ISM Non-Manufacturing is out March five.

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The information was a wake-up get in touch with for the US equity industry, hitherto complacent about the influence of the virus. US equities fell, with the S&ampP500 down by more than 1% and the Nasdaq index down by a higher 1.eight%. Earlier in the session, the Stoxx Europe 600 Index fell .five% taking it weekly loses to .57%. Seeking at the weekly efficiency, it was a undesirable week for most equity markets US, Europe and Japan all down for the week, generating China  a enormous outlier with the Shanghai composite up four.21%.

Moving onto the bond industry

The US information disappointment bull flattened the UST curve with the US 30-year bond falling to a record low of just more than 1.88%, ahead of closing the week at 1.915%. The 10-year price closed down 4bps to 1.47% right after falling to as low as 1.435%, breaking earlier assistance at 1.50%. The Fed Funds curve now rates in almost two complete price cuts this year and the danger of a different reduce subsequent year.

The move reduced in UST yields weighed on the major dollar with the DXY index down .60% to 99.26 whilst BBDXY was -.35% to 1214.22. The USD lost ground against all G10 pairs with SEK the major winner, up 1.00% followed by GBP up .64% to 1.2943 whilst the euro regained all of it prior losses for the week, closing about 1.0850 (now at 1.0832).

Soon after the NZ close

The NZD created a new year-to-date low of .6303, but the turnaround in the USD saw a sharp rise to close the week about .6350. The AUD followed a comparable pattern, increasing from an 11-year low of .6586 to close the week close to .6625. AUD has began the new week just above the 66c mark.

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We believe it is almost certainly also early to throw the towel on the USD. Yes, Friday’s information  was disappointing and US equity markets have been in have to have of COVID-19 wakeup, nonetheless we are probably getting into a period of messy and potentially misleading information releases. The US had a undesirable information day, but we believe that is just a taste of what is but to come with other big economies probably to show undesirable financial numbers also. Unless difficult financial information shows the US economy is underperforming other people, USD weakness is unlikely to be a sustained theme more than the coming weeks.

Information round-up

JN: CPI ex fresh meals, power (y/y%), Jan: .eight vs. .eight exp.

GE: Manufacturing PMI, Feb: 47.eight vs. 44.eight exp.

GE: Solutions PMI, Feb: 53.three vs. 53.eight exp.

EC: Manufacturing PMI, Feb: 49.1 vs. 47.four exp.

EC: Solutions PMI, Feb: 52.eight vs. 52.three exp.

UK: Manufacturing PMI, Feb: 51.9 vs. 49.7 exp.

UK: Solutions PMI, Feb: 53.three vs. 53.four exp.

US: Markit Manufacturing PMI, Feb: 50.eight vs. 51.five exp.

US: Markit Solutions PMI, Feb: 49.four vs. 53.four exp.

US: Current household sales (m), Jan: five.46 vs. five.44 exp

Coming up

  • This morning New Zealand gets Q4 retail sales figures followed by credit card spending for January. The German IFO is the information release to watch tonight (95 exp. vs 95.9 prev.).
  • Seeking at the rest of the week, Australia’s Q4 GDP partials are the domestic highlights. In offshore markets, the US Customer Self-confidence is out on Tuesday followed by PCE on Friday and China’s PMI on the weekend.  Fed Vice Chair Clarida speaks Tuesday evening.

Industry rates

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