Main Themes: Coronavirus worries weighed on sentiment. US equity bourses fell significantly and bond yields tightened further. The US 10-year treasury yield fell to a record low after US authorities issued a warning that the virus could spread to American soil.
Share Markets: International stocks suffered heavy losses again overnight as fears over the global spread of the Covid-19 infection heightened. The Dow Jones plunged 3.1%, its second session falling more than 3% and its fourth decline in a row. US stock markets are now trading around their November levels, having retreated from record highs in previous weeks. The S&P 500 is currently down 3.2%.
The ASX 200 fell 1.6% yesterday, a relative outperformer among other major bourses in the region.
Interest Rates: The threat of a global spread of the coronavirus sent risk-off assets higher. Investors flocked to US treasuries and ramped up bets that the Fed will cut rates this year. The US 10-year treasury yield fell to a record low 1.33%. US 2-year yields fell 4 basis points to 1.21% and the 3-month treasury bill fell 2 basis points to 1.49%. Fed funds futures are now pricing in a mid-point Federal funds rate of 0.96% by the end of 2020 from the mid-point of 1.625% currently.
Australian bond yield movements were muted yesterday. The 10-year bond yield remains below 1% at 0.93% while the 90-day bank bill swap rate was down 2 basis points to 0.86%.
Foreign Exchange: The US dollar fell overnight as investors increased their expectations of US rate cuts this year. Coronavirus fears had pushed up the US dollar last week, but other risk-off assets have taken precedence as concerns have grown that the virus could impact US growth. The US dollar index fell 0.372 to 98.987.
The safe-haven yen rose against the US dollar, with the USD/JPY falling 0.61 to 110.11. The euro rose to US$1.0883.
The Australian dollar has been under pressure in recent days amid coronavirus concerns. The AUD breached the US$0.6600 level overnight, but remained range-bound between US$0.6623 and US$0.6586. It is currently at US$0.6596.
Commodities: Oil prices fell for the third consecutive session. WTI fell by US$1.5 per barrel to US$49.9. Reports of rising US crude inventories started the sell-off while the coronavirus warning issued by the US Centers for Disease Control and Prevention (CDC) accelerated the decline.
Gold prices took a breather after five consecutive increases, falling 1.5% overnight to US$1,634.71 per ounce.
Palm oil prices plunged 20% due to supply disruptions in Malaysia (the world’s second biggest producer).
COVID-19: The CDC issued a statement warning Americans to prepare for the spread of the coronavirus on US soil. It warned that there would be a significant disruption to daily life if the virus were to spread locally, saying that US emergency plans would closely resemble the drastic action taken by other countries. The World Health Organisation (WHO) has not yet declared the Covid-19 outbreak a global pandemic. There were 839 new confirmed cases yesterday, bringing the total above 80,000 worldwide. Most cases remain in China.
Australia: There was no major data released yesterday.
Europe: The final Q4 GDP reading for Germany confirmed that growth stalled in the most recent quarter. The reading was unchanged at 0.0%. German growth is expected to face more challenges given its close trading ties with China.
United States: House prices measured by S&P-CoreLogic showed the 20-city house price index up 2.9% over the year in December, in line with expectations. The Richmond Fed’s activity survey was -2 in February, down from the previous reading of 20. Meanwhile, the Conference Board consumer confidence index fell slightly to 130.7 in February.
Today's key data and events:
AU Constr. Work Done Q4 exp -0.6% prev -0.4% (11:30am)
US New Home Sales Jan exp 3.2% prev -0.4% (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.
Nelson Aston, Economist Ph: 02-8254-1316