Original insights into market moving news

[PODCAST] US Open Rundown 16th March 2020

  • FOMC cut the Fed Funds Rate 100bps to 0.00%-0.25% and launched a USD 700bln QE program
  • RBNZ lowered the OCR by 75bps to 0.25% in an emergency meeting and stated that the OCR is to remain at 0.25% for at least a year
  • BoJ held an emergency monetary policy meeting in which it kept short-term rates at -0.10% and maintained long-term yield target at 0%, but raised purchases of ETFs and J-REITs
  • European equities continue to erode in early trade [Euro Stoxx 50 -8.5%], US equity futures are locked in limit down
  • In FX, DXY is softer, USD/JPY retreated below 106.00, CAD, NZD and AUD concede ground to the Buck
  • Looking ahead highlights include US NY Fed Manufacturing, Eurogroup meeting


FOMC cut the Fed Funds Rate 100bps to 0.00%-0.25% via 9-1 vote (Mester dissented preferring a 50bps cut) and the Fed launched USD 700bln QE program in which it will increase Treasury purchases by at least USD 500bln and raise MBS purchases by USD 200bln. Fed expects target interest rates will remain in this range until economy has weathered recent events and is on track to meet inflation and employment targets, while it is reducing requirement ratio to 0% effective March 26th. (Newswires)

Fed Chair Powell said the coronavirus is having a profound effect on US and globally, while he added that weakness abroad will weigh on US exports for a while and that financial conditions in US tightened markedly. Powell also stated that today's actions will help the US economy as well as promote a more vigorous return to normal, and that the emergency FOMC meeting was in lieu of meeting on March 17th-18th. Furthermore, Powell the Fed doesn't see negative rates as appropriate policy response in the US and he is willing to be patient in assessing when to raise rates back from near-zero, while he suggested the Fed has plenty of policy space and that fiscal policy should also play a major role. (Newswires)

BoE Governor Carney said Fed, BoJ, Bank of Canada, ECB and SNB have agreed to lower pricing on standing US Dollar liquidity swaps by 25bps and that central banks will offer US Dollar swaps with 84-day maturities in addition to 1-week operations, while he added that the actions will ease strains in global funding markets. (Newswires)

RBA said it is to conduct 1-month and 3-month operations until further notice, while it will conduct 6-month operations or longer at least weekly. Furthermore, the RBA later said it added AUD 5.9bln to banking system through market repo operations, while it is ready to purchase Australia government bonds and will announce further policy steps on Thursday. (Newswires)

RBNZ lowered the OCR by 75bps to 0.25% in an emergency meeting and stated that the OCR is to remain at 0.25% for at least a year, while it delayed higher capital requirements for banks and stated that if more stimulus is required, the preference is large scale government bond purchases instead of another rate cut. There were also comments from RBNZ Assistant Governor Hawkesby that the rate cut and other measures announced give bank sufficient time to reassess the situation and that stopping at 0.25% signals RBNZ are not looking to go to zero or negative rates, while RBNZ Chief Economist Young Ha said bond purchase program is to be ready for May if needed. (Newswires)

BoJ held an emergency monetary policy meeting in which it kept short-term rates at -0.10% and maintained long-term yield target at 0%, but raised purchases of ETFs to JPY 12tln from JPY 6tln and increased purchases of J-REITS to JPY 180bln from JPY 90bln, while it set aside JPY 2tln for more buying of commercial paper and corporate bonds. Furthermore, the decision on QQE with yield curve control was made by 7-2 vote with Kataoka and Harada the dissenters again, while the central bank stated it is ready to ease further without hesitation as needed with a close eye on coronavirus. BoJ announced additional JPY 100bln JGB purcahses in 3-5yr and 5-10yr maturities on March 17th. (Newswires)

HKMA lowered its base rate by 64bps to 0.86% and announced that the countercyclical buffer is to be lowered to 1% from 2% with immediate effect. (Newswires)

BoK cuts key base rate by 50bps to 0.75% in an emergency move. (Newswires)

German State of Bavaria is making available up to EUR 10bln of special funds due to coronavirus. (Newswires)


US House voted 363-40 to pass bill to make coronavirus testing free and require paid sick leave for those impacted by the coronavirus outbreak. (Newswires)

New York City Mayor De Blasio ordered restaurants, bars, nightlife and cinemas to shut except for delivery and the Los Angeles Mayor also ordered the close of restaurants, bars and nightclubs in an effort to contain spread of coronavirus. Elsewhere, Washington Governor Inslee said will sign state-wide emergency proclamation to temporary shut-down restaurants, bars, entertainment and recreational facilities, although restaurants will be allowed to provide take-out and delivery, while the ban will not apply to grocery stores nor pharmacies. (Newswires) US CDC recommends all gathering of over 50 people be suspended. (Newswires)

New Zealand PM Ardern said business continuity package which will be announced on Tuesday will be significant. PM Ardern also stated the focus is on jobs and that this is phase 1 of the response, while she added that the impact of virus could be greater than the global financial crisis. (Newswires)

Mainland China reported 16 additional cases of coronavirus and 14 additional deaths on March 15th vs. Prev. 20 additional cases and 10 additional deaths on March 14th. In other news, South Korea coronavirus cases increased by 74 to a total of 8236, while there were 303 additional recovered patients and there were no additional deaths reported for the first time since Feb. 15th. (Newswires/Yonhap)

UK Government is to make further announcements on coronavirus measures later today, according to PM's Senior Advisor Cummings. (Newswires)

Italy’s coronavirus cases rose to 24747 from 21157 and there were 368 new deaths to bring the total death toll to 1809. (Newswires)

France and Spain banned all non-essential activities and Paris warned as much as 70% of the population would be infected by the coronavirus, while Germany is to impose temporary controls on its borders with France, Switzerland, Austria, Denmark and Luxembourg on Monday to contain the spread of the coronavirus. (Times/BBC) French President Macron is to address French nation at 1900GMT today. (Newswires)

EU Council President Michel is to conduct a video call with EU leaders tomorrow to discuss coronavirus. (Newswires)


Asian equity markets weakened and US equity futures hit limit down to start the week as coronavirus fears and disruptions continued to spook investor sentiment, despite numerous policy measures to address the fallout from the outbreak including the Fed throwing the kitchen sink with a 100bps emergency cut and USD 700bln QE announcement. This followed the national emergency declaration by US President Trump last Friday which opens access to USD 50bln of emergency funds for states to tackle the coronavirus, while BoC and RBNZ also recently announced emergency cuts of 50bps and 75bps respectively. Nonetheless, ASX 200 (-9.7%) failed to benefit from the global policy measures and announcement the RBA stands ready to purchase government bonds, with heavy losses in mining names, financials and industrials resulting the index’s worst ever drop, while Nikkei 225 (-2.6%) was choppy amid the BoJ’s emergency meeting in which it kept rates and the yield target unchanged but doubled ETF and J-REIT purchases. Hang Seng (-4%) and Shanghai Comp. (-3.4%) were both negative due to widespread fears and after surprise contractions to Chinese Industrial Production (-13.5% vs. Exp. 1.5%) and Retail Sales (-20.5% vs. Exp. 0.8%), but with losses in the mainland stemmed after the PBoC’s recent targeted RRR cuts of 50bps-100bps and additional 100bps cut for joint-stock banks which will unleash CNY 550bln of funds, while the HKMA authority also announced a rate cut in lock step with the Fed albeit to a lesser extent of just 64bps. Finally, 10yr JGBs opened lower due to the after-hours slump on Friday as stock markets found some firm but brief relief, although JGB prices rebounded off their lows as fears returned to the fore of investors’ minds before retreating again after the BoJ announced to keep main policy settings unchanged but instead boosted purchases of ETFs, J-REIT, Commercial Paper and Corporate Bonds, while pressure was also seen in the Australian 10yr yield after the RBA signalled a readiness to purchase government bonds.

PBoC conducted CNY 100bln in 1yr MLF operations at 3.15% vs. Prev. 3.15%. (Newswires) PBoC set USD/CNY mid-point at 7.0018 vs. Exp. 7.0067 (Prev. 7.0033)

Chinese Industrial Production (Feb) Y/Y -13.5% vs. Exp. 1.5% (Prev. 6.9%). (Newswires) Chinese Retail Sales (Feb) Y/Y -20.5% vs. Exp. 0.8% (Prev. 8.0%) Chinese House Prices (Feb) Y/Y 5.8% (Prev. 6.3%)

China stats bureau said China's economy remains resilient despite coronavirus impact, while it expects the economy to show significant improvement in March and sees the impact to economy from coronavirus to decrease in Q2. (Newswires)


Apple (AAPL) - Co. has closed all stores outside of Greater China for two weeks in a bid to contain the virus outbreak. Separetely, Co. has been fined EUR 1.1bln by the French anti-trust agency (Newswires) Co. has ~12.0% weighting in the Nasdaq, ~8.0% in DJIA and ~5.0% in S&P500

Other US closures - Lululemon (LULU) is to also close all North America and Europe stores from March 16th-27th, while MGM (MGM) and Wynn Resorts (WYNN) are to temporary close their Las Vegas properties due to the coronavirus. (Newswires)


Russian Foreign Ministry says militants in Syria's Idlib are not complying with the ceasefire agreement, according to IFAX. (Newswires)


European equities continue to erode in early trade [Euro Stoxx 50 -8.5%] despite pre-emptive monetary easing measures from global Central Banks including a 1ppt reduction by the Fed alongside a USD 700bln QE boost. The downbeat sentiment from the APAC session reverberated into Europe as the underlying coronavirus theme further crystallises, which saw US equity futures hit the 5% limit down at the open and hover at the levels during European trade thus far (Full details available here). Meanwhile, Euronext stated that it will be doubling the ETF threshold amid “exceptional market conditions caused by recent news and events”, with the normal threshold set to return once condition return back to normal. Sector-wise, the usual suspects show underperformance – Financials (-9.6%) sink as banks bear the brunt of the lower yield environment, whilst Consumer Discretionary (-9.3%) follow closely amid a further deterioration in Travel & Leisure (-18.0%) in light of renewed fleet groundings in airline and cruise names. On that front, Air France-KLM (-16.7%) remains a laggard in the Stoxx 600 after noting that flight activity will be reduced significantly over the next few days, with the number of seats available per km seen dropping between 70-90%. easyJet (-21.0%) meanwhile stated that it has taken on further cancellations, with these actions to continue for the foreseeable future. Tui (-30.0%) plumbed the depths following after withdrawing its FY20 guidance and applying for state aid to support the business. Credit Suisse (-12.0%) shares feel extra pressure after US prosecutors are pursuing the Co. for its role in a USD 2bln Mozambieq corruption case, in which they believe that they have enough evidence against the Co. Elsewhere, Associated British Foods saw considerable downside in early European trade despite a rosier trading update (sees adj. operating profit ahead of prior guidance), with some attributing the move to a fat-finger. Finally, Bayer (-4.7%) outperforms the German index but conforms to the overall sell-off despite source reports that the Co. is a step closer in agreeing to draft settlement regarding tens of thousands Roundup weed killer claims.


USD - The Greenback has handed back almost all Friday’s gains and would surely be even weaker if the non-US Dollars were not underperforming on a combination of rate cuts and risk aversion. Indeed, the DXY is only just off its pre-weekend low of 97.335 within a 97.446-98.473 range after the Fed’s latest intermeeting policy action (-100 bp FF cut to 0-0.25% and Usd700 bn QE) as the US Treasury curve unwinds some of its initial bull-steepening.

CAD/NZD/AUD - As noted above, the Loonie, Kiwi and Aussie are all conceding ground to their US counterpart in wake of various forms of stimulus designed to protect respective economies from further COVID-19 contagion, including a standard 50 bp BoC rate cut (on top of the ½ point reduction at the scheduled March meeting), -75 bp from the RBNZ and the RBA introducing more repos ahead of additional ‘measures’ to come on Thursday that may involve some for of asset purchases. Usd/Cad is back up near 1.3900, Nzd/Usd is straddling 0.6000 within a wide 0.6153-0.5945 band and Aud/Usd is hovering around 0.6170 between 0.6303-0.6097 parameters, with the latter also taking on board extremely bleak Chinese data (ip and retail sales) that is keeping Usd/CNH afloat on the 7.0000 handle.

JPY/CHF/EUR - It’s abundantly evident that safe-haven appeal is considerably stronger than any negativity associated with looser monetary policy or the prospect in the case of the Yen and Franc that have both strengthened vs the Buck and generally. Usd/Jpy has retreated through 106.00 from almost 108.00, while Usd/Chf has tested 0.9400, with Eur/Jpy and Eur/Chf eyeing 118.00 and sub-1.0550 respectively even though the single currency is outpacing the Usd either side of 1.1200. To recap, the BoJ joined others in the fight against nCoV via increased QE, while the clock is ticking down to the SNB’s quarterly policy review this Thursday and latest weekly Swiss sight deposits suggest more intervention. For its part, ECB’s Holzmann has reiterated that the GC is willing to do more after last week’s targeted measures.

SCANDI/EM - As usual when oil and other commodities (Gold also) succumb to broad and severe risk-off positioning, the Nok, Rub, Mxn and Zar tend to get hit harder than most and today is no exception, albeit with crude prices not quite experiencing the near panic selling/liquidation seen this time last week. However, many regional currencies are at fresh record or multi-year lows and only being propped by intervention, like the Ils to name just one. 


In stark contrast to last Monday, bonds are markedly mixed with the Eurozone debt futures all under pressure and not seeing any real safe-haven flight in contrast to Gilts that are holding above parity and 136.00, albeit off 136.24 at best, and USTs maintaining a firm underlying bid, but again some distance from overnight session highs forged on the Fed’s much more aggressive policy moves late last Friday. Ahead, NY Fed manufacturing to provide some, passing diversion from the ongoing coronavirus vigil.


WTI and Brent front-month futures continue to deteriorate amid further materialisation in coronavirus woes, and with further cancellations in the Travel and Leisure sector dampening demand growth in the complex. WTI Apr’20 dipped below USD 30/bbl at the open of electronic trade before taking multiple stabs at the level to the downside since Europe entered the market, although giving up the handle at the time of writing. Meanwhile, Brent May’20 underperforms its US counterpart with the prospect of the OPEC breakdown further weighing on the contract - Brent gapped lower to sub-40/bbl vs. Friday’s close of ~USD 45/bbl. Analysts at ING state that the underperformance doesn’t come as too much of a surprise “given the severity of the breakout across Europe, along with the action taken by governments to try to contain the virus”. The Dutch bank also suggests that the current weakness in oil prices is likely to persist through Q2 this year as the surge in supply and demand hit means that the markets will likely see a significant surplus. Elsewhere, spot gold (-1.8%) trades weaker as investors flee for cash holdings amid significant losses in riskier assets, traders also note that a decline below USD 1500/oz may induce a stop-chase, with the yellow metal’s 200DMA ~1500.25/oz and a Fib level at USD 1495.96/oz. On that front, spot silver (-10.7%) slid since the open and briefly fell south of USD 13/oz to levels last seen in 2009. Similarly, the flight to cash and a significant slump in Chinese IP figures have prompted copper prices to crash from ~USD 2.55/lb to sub USD 2.40/lb.

OPEC/OPEC+ JTC meeting planned for March 18th in Vienna has been cancelled, sources state. (Newswires)

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