When a global event such as Coronavirus hits, it would be useful for countries to look to collaborate for mitigate the impact. This has spectacularly not been the case where the major forces in OPEC+ have seen a complete breakdown in relations. With Russia not agreeing to a 1.5m barrels per day production cut proposed by OPEC, there has been a massive change of tack from Saudi Arabia. Oil selling prices slashed and a ramp up of production as an oil price war seems to have set in. The oil price is over -25% lower in early moves today. Safe haven assets are stronger, whilst anything deemed remotely of high risk is being smashed. US Treasury yields are plummeting (even further than they already were) as markets now seem to be positioning for not only more and more rate cuts from the Fed but now also even renewed QE. The dollar is getting hit hard against currencies where central banks have little room to cut (.e. the BoJ, ECB and SNB). Commodity currencies are also getting hit. Equity futures are also through the floor this morning, with the DAX futures over -9%. Add in Chinese and Japanese data disappointments over the weekend and it is a torrid set up for the bulls today. One interesting market to watch too, could be gold. Gold fell sharply a couple of weeks ago as margin calls hit across portfolios. Might this be seen again? The China Trade Balance fell off a cliff in February, with an expected surplus of +$24.6bn coming in as an actual trade deficit of -$7.1bn. This was driven by the level of imports not being as bad as expected. Chinese exports fell more than expected by -17.2% (-14% exp) and Chinese imports fell by a lot less than forecast at -4.0% (-15.0% exp). With Japanese GDP also falling by more than expected in Q4, even before the Coronavirus hit, the prospects for the global economy have taken more of a hit today.
Wall Street closed lower (S&P 500 -1.7% on Friday at 2972) with US futures -4.9%. Asian markets have been hit hard overnight with the Nikkei -5.1% and Shanghai Composite -3.0%. European markets are absolutely tanking with DAX futures -8.9%. In forex, there is a massive split according to risk. Outperforming currencies include the JPY, EUR and CHF; whilst the commodity currencies are being sold off. In commodities, gold is up +0.5% but the oil price is the big story, currently -26%.
It is a quiet day on the economic calendar, with the Eurozone Sentix Investor Sentiment at 0930GMT. The index is expected to drop sharply to -11.1 for March (from +5.2 in February).
There are no central bank speakers scheduled for today. The FOMC has moved into its blackout period in front of the next meeting on Wednesday 18th March.
Chart of the Day – DAX Xetra
What a wild ride equities are! The DAX with its high export and exposure to international trade is clearly no exception to the selling pressure. The sharp sell-off from Thursday’s open has left key resistance around the bearish gap-fill at 12,210 and with another huge sell-off on Friday, the market is at its lowest level in six and a half months. Closing clear of 11,615 is below the 61.8% Fibonacci retracement (of the 10,269/13,795 big December 2018/February 2020 bull market) and also mark another key downside moment. An opening surge of sell orders today is pushing the DAX below the crucial support of the August 2019 low at 11,265. A closing breach of this low would be another massive moment for the market as this marked a crucial low in the 14 month bull market. Other key levels to look out for are 11,100 (the 76.4% Fib retracement) and 11,000. Breaching these on a closing basis would effectively open the 10,270 major December 2018 low. Momentum is desperately negative right now, with MACD lines accelerating lower, RSI turning lower under 30 and Stochastics bearishly configured. Within this volatility, rallies will still be seen as a chance to sell.
The lower US Treasury yields fall, the higher EUR/USD is climbing. With such elevated volatility in the market right now, resistance levels seem to matter little. Another surge of buying on EUR/USD pushed the market way through the resistance of $1.1410/$1.1450 for an intraday move to its highest level since January 2019. It is difficult to know where this move stops right now. The momentum indicators are stretched, with RSI towards 80 now, but that does not seem to register for now. So if the conventions of support/resistance and momentum are not being conformed to, trading with high volatility is incredibly risky. A close above $1.1450 today opens the next resistance band $1.1500/$1.1570 but this is now only a loose guide. The breakouts of $1.1200/$1.1240 would be a ballpark support area, but again if there is a turn in the market, it will likely be swift, perhaps as swift as the run higher. Today’s intraday high of $1.1490 is a gauge of resistance too.
Given how sterling has struggled in recent weeks, when Cable is rallying hard, this is a big reflection of dollar weakness that is setting in. With a fourth consecutive strong positive candle, in a move that has now broken resistance at $1.3015, the outlook for Cable has decisively changed. It means that the run of lower highs of the past five weeks has now been broken. Cable is trading above its moving averages too and is accelerating higher again today. Momentum indicators are clearly moving higher on the Cable improvement, and if the RSI and Stochastics close above 60 today it would be confirmation of bull control, for now. The bigger medium term outlook for Cable is now neutralised by this move, but the bulls are also testing the key resistance around $1.3200. This is not only the 23.6% Fibonacci retracement (of $1.2193/$1.3515) around $1.3200, but also the key January lower high. Old resistance at $1.3070 is now supportive, with a band $1.3015/$1.3070 and given these volatile times, a break back below would signal potential profit-taking.