Main Themes: Financial markets experienced thin trading conditions overnight with the US President’s Day holiday. There was some improvement in risk appetites, after China unleashed fresh stimulus yesterday.
Share Markets: US share markets were closed overnight for President’s Day Holiday. In Europe, share market bourses advanced, as China pledged to support its economy. The Euro Stoxx 50 index added 12 points (or +0.3%), the UK’s FTSE 100 index rose 24 points (or +0.3%) and the German DAX lifted 17 points (or +0.3%).
Interest Rates: Implied US 10-year yields (from futures) ranged between 1.59% and 1.61%. Interest-rate markets are pricing a 5% chance of easing at the next Federal Reserve meeting on March 18 and a terminal rate of 1.13% (vs Federal Reserve’s current mid-rate of 1.63%).
Australian 3-year government bond yields ranged between 0.72% and 0.74% and 10-year yields between 1.05% and 1.07%. Interest-rate markets are pricing a 5% chance of easing at the next RBA meeting on March 3 and a terminal rate of 0.47%.
Foreign Exchange: There was very little movement in the major currencies overnight. The AUD/USD exchange rate stuck to a narrow range of 0.6706-0.6729 in the past 24 hours. President’s Day holiday in the US likely contributed to the narrower trading ranges.
Commodities: Gold fell overnight, after China deployed fresh stimulus yesterday to support its economy.
Australia: There was no major data released yesterday locally. Later today, the Reserve Bank (RBA) releases its minutes for the board meeting held on February 4. The RBA has begun 2020 with a half-glass full view of the economy.
New Zealand: The services industry was on a strong footing before the impact of the coronavirus hit, according to the January reading of the performance of services index. The BusinessNZ & Bank of NZ services purchasing managers’ index (PMI) bounced back 5 points to 57.1 in January, the highest since May 2018.
The services industry is expected to be negatively impacted by measures to contain the coronavirus, including bans on visitors who have been to China recently. Tourism-related industries are expected to be particularly affected.
Japan: Japan’s economy shrunk by more than expected in Q4. The prospect of a significant disruption to activity due to the coronavirus means that the economy is at risk of falling into another recession.
GDP shrank at an annualised rate of 6.3% in Q4, as consumer spending dried up following the sales tax hike in October. Weak global demand and a typhoon provided additional drags on growth. A substantial fiscal stimulus program designed to offset the negative impact of the sales tax hike was forecast to provide a cushion. In the event, private consumption plunged by an annualised 11% and business investment fell 14%.
If the coronavirus were to provide a big enough shock to result in negative growth in Q1, it would be the first technical recession in Japan since 2015.
China: Yesterday the People’s Bank of China (PBoC) cut rates and added medium-term funding to help cushion the impact of the virus outbreak on economic activity. The PBoC offered US$29 billion of one-year medium-term loans to commercial lenders and cut the interest rate it charges for the money by 10 basis points to 3.15%. This rate is the lowest since 2017.
Since the outbreak of the coronavirus worsened in late January, China’s central bank and government have announced small rate cuts, early bond sales and various other targeted measures to calm financial markets and support companies. So far, there’s not been a massive increase in stimulus, although that may change if and when the coronavirus is brought under control.
China said the number of coronavirus cases climbed above 70,000. The head of a Wuhan hospital said a turning point has been reached in the epicentre of the outbreak, as new cases fell over the weekend, but the outlook was more cautionary outside of China.
In terms of data, China’s new home prices rose by 0.27% in January, after gaining 0.3% in December 2019. Third-tier cities new home prices increased the most, by 0.36% in the month.
United Kingdom: House prices rose by 0.8% in February, after a lift of 2.3% in January, according to Rightmove. On a year ago, house prices grew by 2.9%, up from annual growth of 2.7% in the previous month. According to Rightmove, house prices received a boost from the Brexit breakthrough, which lifted confidence.
United States: There was no major economic data released overnight in the United States. It was President’s Day holiday.
Today's key data and events:
AU RBA Minutes for Feb Policy Meeting (11:30am)
UK Jobless Claims Change Jan prev 14.9k (8:30pm)
UK Unemployment Rate Dec exp 3.8% prev 3.8% (8:30pm)
EZ German ZEW Survey Feb exp 22.0 prev 26.7 (9pm)
UK ILO Unemployment Rate 3 Mths Dec exp 3.8% prev 3.8% (8:30pm)
UK Avg Weekly Earnings ex Bonus 3 Mths Dec exp 3.3% prev 3.4% (8:30pm)
EZ Eurozone ZEW Survey Feb prev 25.6 (9pm)
US Empire Mfg PMI Feb exp 5.0 prev 4.8 (12:30am)
US NAHB Housing Index Feb exp 75 prev 75 (2am)
Times are AEST. All data forecasts are m/m or q/q and seasonally adjusted unless otherwise specified. Forecasts for Australian data are our forecasts and for other countries they are consensus forecasts.
Besa Deda, Chief Economist Ph: 02-8254-3251