When markets are so fretful, the Trump administration playing a game of “will they, won’t they” is not helpful. Whether they have just been blindsided (or whether the blinkers have been on) over Coronavirus, US politicians are yet to agree or have a plan in place for fiscal stimulus. Markets are dealing in rumours and briefings right now. The wild swings in sentiment on Wall Street suggest there needs to be a definitive plan in place from the US Government, and fast. The questions surrounding fiscal support for economies is set to be a theme, with the questions surrounding the prospect of stimulus in the US, the UK Annual Budget announcement is today in Parliament. Support for small businesses and individuals across the UK economy is expected to cope with the economic shock of Coronavirus. The monetary side is also in focus, as this morning the Bank of England has also become the latest in a line of central banks to cut rates. So into today’s session, we see Treasury yields ticking back lower again, the dollar under pressure again and equities also selling down again. How UK assets respond to the Bank of England move will also be interesting. Sterling has initially dropped by around 50 pips against the dollar, so this would suggest the market anticipated the decision, perhaps it was just the timing that has shocked, arguably sooner than anticipated. It gives hope that perhaps the UK Government and Bank of England are collaborating for a dual monetary and fiscal response. FTSE 100 has at least responded well early this morning.
Wall Street closed sharply higher with the S&P 500 +4.9% at 2882, but the wild ride will not stop there as the rollercoaster looks set for another swing lower today with US futures -2.4% currently. Asian markets were broadly lower with the Nikkei -2.3% and Shanghai Composite -0.9%. European markets look tentatively positive in early moves. In forex, renewed USD selling has taken hold, but GBP underperformance is greater moving into the European session. JPY and NZD are the main outperformers. In commodities, with the dollar weaker and yields lower, we see gold rebounding once more by +0.8%. Oil has begun to generate some renewed negative pressure.
US inflation will be the main distraction for the economic calendar, but there is a smattering of UK data first up. The UK monthly GDP for January is at 0930GMT and is expected to show a decent showing of +0.2% (after +0.3% in December). UK Industrial Production is expected to show growth of +0.3% in the month of January, but this would take the Year on Year decline down to -2.6% (from -1.8% in December). The UK Trade Balance is expected to show a deficit of -£7.0bn in January (after the surprise surplus of +£0.8bn in December). The main focus for the day will be US inflation, with US CPI at 1230GMT. Headline CPI is expected to show 0.0% growth in February which would drag the year on year CPI down to +2.2% (from +2.5% in January). Core CPI is expected to grow by +0.2% which would maintain the year on year core CPI at +2.3% (+2.3% in January).
There are no central bankers due to speak today, with FOMC members in the blackout period until next Wednesday’s meeting.
Chart of the Day – NZD/USD
Attempting to make sense of the charts of commodity currencies is a massively difficult task right now. With incredible levels of volatility seen in Monday’s session, the technical rally of late February seems to have been turned on its head. Trying to look past the huge intraday swing, with a renewed negative candle yesterday and two consecutive bear closes, it seems that the strength of the dollar and move away from a higher risk Kiwi is now looking to resume. Near term rallies such as that early today look to be a chance to sell. Essentially, the ten week downtrend is still playing out and the early March rally has helped to renew downside potential. The pair could now be set for another bear leg lower. The RSI and Stochastics have effectively just unwound to fall over around neutral again (bear cross on Stochastics), whilst the MACD lines have barely even got going in a recovery. As such, we expect the market is looking back towards another test of the support around $0.6200 again. The hourly chart shows resistance building at $0.6330/$0.6360. A move back below the near term pivot at $0.6280 (which has consistently been a turning point in recent weeks) would open the lows around $0.6150/$0.6200.
The huge negative candle of yesterday’s session acted entirely to counterbalance a huge positive candlestick from Friday. These wild swings on EUR/USD just go to show how difficult trading has become. The Average True Range is now 117 pips, which is incredible for a pair usually as stable as EUR/USD. We are not done there yet though, as renewed concern over the deliverability of US fiscal stimulus has pulled yields lower and the dollar is back under pressure. Another swing back higher on EUR/USD is underway today. On a technical basis, there has been a cross of the RSI back under 70 (from the closing peak of over 80 on Friday). This is potentially a corrective move, but given the volatility, looking for confirmation below 60 would be wise before enacting any negative outlook. The Stochastics have also not confirmed anything negative yet either. This morning, the market has picked up from $1.1275 which now becomes a basis of support. The hourly chart shows a potential corrective move would also be scuppered on a move back above $1.1400. How the dollar bulls react to this renewed negative pressure will be interesting now, as it had looked that they were beginning to reclaim some control. A failure of this rebound back under $1.1325 (around the 23.6% Fibonacci retracement of the $1.0775/$1.1492 rally) would be negative now. We have entered an interesting crossroads phase.