Bank of Melbourne

Morning Report

Main Themes: Major global share market bourses tanked and bond prices rallied hard, as investors fretted over the acceleration of COVID-19 cases outside of Asia. The increase in the number of cases in Italy, Iran and South Korea is deeply worrying investors. Concerns over the world growth outlook and global-supply chains are also intensifying as a result.
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Main Themes:  Major global share market bourses tanked and bond prices rallied hard, as investors fretted over the acceleration of COVID-19 cases outside of Asia. The increase in the number of cases in Italy, Iran and South Korea is deeply worrying investors. Concerns over the world growth outlook and global-supply chains are also intensifying as a result.

Share Markets: Share markets tanked overnight on worries about the impact of COVID-19 on global growth and the earnings of companies.

The Dow Jones sank 1,032 points (or -3.6%), the S&P 500 dropped 112 points (or -3.4%) and the Nasdaq index fell 355 points (or -3.4%). It was the third biggest daily drop in the Dow Jones on record. It is also the first time all three benchmarks each fell by at least 3% on the same day since 4 December 2018.

Across in Europe, the Euro Stoxx 50 index closed 152 points lower (or -4.0%).

Interest Rates: Investors’ appetite for risk plummeted, resulting in a flow of money to safer haven assets. Bond prices rallied hard as a result, driving bond yields sharply lower. The US 2-year bond yield fell 10 basis points to 1.25%, the lowest rate since May 2017. The US 10-year bond yield also fell 10 basis points.

Foreign Exchange: AUD/USD traded in a volatile fashion overnight in a range of 0.6585-0.6620. From a technical perspective, the downtrend evident since the start of this year remains firmly in place. With the AUD/USD a proxy for global risk sentiment and COVID-19 concerns escalating, AUD/USD is set to trade lower towards the 0.6000 handle.

Overnight, the JPY appreciated against other major currencies, benefiting from safe-haven flows. USD/JPY moving from around 111.50 to under 110.50.

Commodities: The risk-off mood sent the price of gold up nearly 2% to a fresh 7-year high, approaching US$1,700 a tonne. Oil plummeted more than 5%, as concerns over world growth intensified. Industrial commodities were also hit.

Australia: There was no major economic data released yesterday.

China: The People’s Bank of China (PBoC) said it will put more emphasis on keeping monetary policy flexible as it steps up support to the real economy. It will consider new steps to counter the virus’s impact, adding lenders will be encouraged to set up special loan quotas.

COVID-19: There are now 79,339 confirmed cases in 30 countries and 2,619 deaths. A number of countries in the Middle East reported their first cases overnight.

Europe: Germany’s IFO business climate survey rose slightly, from 96.0 in January to 96.1 in February, beating consensus estimates.

New Zealand: Retail spending rose by 0.7% in the December quarter. The moderate increase followed a 1.7% increase in the September quarter, leaving a firmer picture of consumption over the second half of 2019. Rising house prices and growth in real incomes has supported spending. A slowdown in population growth weighed on growth in the December quarter.

Separate data showed that credit card spending rose 1.3% in January, reversing a 0.9% fall in December. January’s lift in credit card transactions suggests that retail spending is set to remain firm early in 2020.

United States: The Dallas Federal Reserve’s manufacturing activity index improved to 1.2 in February, after contracting 0.2 points in January. This survey adds to signs that manufacturing was stabilising before the novel coronavirus outbreak intensified outside of China.

The report followed data last week from the Philadelphia Federal Reserve, which said that its business outlook gauge surged to a 3-year high in February. Also last week, the New York Federal Reserve said its measure of manufacturing in the state accelerated in February.

In other data, the Chicago Federal Reserve’s national activity index improved in January. However, it remained in negative territory at a reading of -0.25 in January, following a reading of -0.51 in December 2019. 

 

Today's key data and events:

JN Services PPI Jan y/y% exp 2.1% prev 2.1% (10:50am)

EZ German GDP Q4 F exp 0.0% prev 0.0% (6pm)

US FHFA House Price Index Dec exp 0.4% prev 0.2% (1am)

US CoreLogic 20-City House Price Index Dec exp 0.41% prev 0.48% (1am)

US CB Consumer Confid. Feb exp 132.1 prev 131.6 (2am)

US Richmond Fed Mfg Index Feb exp 10 prev 20 (2am)

US Fed’s Clarida Speaks (7:15am)

 

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