WHAT HAPPENED YESTERDAY
As of Wed 12 Feb, Singapore Time zone UTC+8
FX MOVES
U.S. Dollar Index, -0.11%, 98.72
USDJPY, +0.09%, $109.85
EURUSD, +0.08%, $1.0920
GBPUSD, +0.32%, $1.2957
USDCAD, -0.19%, $1.3291
AUDUSD, +0.49%, $0.6719
NZDUSD, +0.33%, $0.6406
MARKET MOVES
S&P500, +0.17%, 3,357.75
Dow Jones, -0.00%, 29,276.34
Nasdaq, +0.11%, 9,638.94
Nikkei Futures, +0.84%, 23,838.0
SUMMARY:
The FX market remained largely range-bound. AUD crept higher throughout the day and posted gains of nearly 0.5% vs the USD as risk sentiment continue to stabilise, encouraged by the strength in various global stock indices.
The US large-cap indices started Tuesday’s session hitting intraday highs, but stocks steadily pulled back throughout the day amid a lack of follow-through buying interest. The S&P 500 (+0.2%) and Nasdaq Composite (+0.1%) still eked out closing records, while the Dow Jones Industrial Average (unch) finished flat.
The initial boost in the market was attributed to reports indicating that the rate of new coronavirus cases was slowing down and a view that monetary policy will stay favourable given the risks that remain due to the virus. Fed Chair Powell told the House Financial Services Committee yesterday that the Fed is “closely monitoring” the situation.
U.S. Treasuries finished on a lower note and barely moved during Fed Chair Powell’s congressional testimony. The 2-yr yield increased four basis points to 1.42%, and the 10-yr yield increased four basis points to 1.42%. The U.S. Dollar Index declined by 0.1% to 98.75. WTI crude rose 0.9%, or $0.44, to $50.01/bbl.
BRITISH ECONOMY STAGNATES AS BREXIT UNCERTAINTY HITS GROWTH
Britain’s economy stagnated in the final quarter of 2019 (expected), as political uncertainty, Brexit worries, a slowing eurozone and trade tensions all hurt growth. There was no growth in the last quarter of 2019 as increases in the services and construction sectors were offset by another poor showing from manufacturing, particularly the motor industry. Manufacturing output fell in the October-December period by the most since the third quarter of 2013, down 2.5% from the same period a year earlier, reflecting car plant shutdowns in November, when Britain faced the prospect of a no-deal Brexit.
Britain’s finance minister, Sajid Javid, is expected to give the country’s economy a boost with a spending increase in the government’s first post-Brexit budget on March 11.
IMPACT: The currency, GBP, did not fall off the bed in reaction to the lacklustre print because consensus has already expected the UK economy to stagnate. The expectation of fiscal stimulus to boost the economy provided supporting bids for GBP.
MONETARY POLICY CAN’T BE ONLY GAME IN TOWN
European Central Bank (ECB) President Christine Lagarde said on Tuesday that monetary policy “cannot and should not be the only game in town,” arguing that fiscal and structural policies also have to play their part in upholding the effectiveness of ECB’s stimulus measures. “The longer our accommodative measures remain in place, the greater the risk that side effects will become more pronounced,” Lagarde emphasized that fiscal and structural policies can boost productivity growth and lift growth potential, thereby underpinning the effectiveness of the ECB’s measures. “Indeed, when interest rates are low, fiscal policy can be highly effective,” she said.
She called for further efforts towards a “more complete” Economic and Monetary Union. The eurozone’s architecture has evolved substantially in recent years but “essential elements are still missing or incomplete,” Lagarde noted.
IMPACT: The call for fiscal stimulus in the EU continues and these calls by Lagarde usually foreshadow the actual measures that are to come out of the ECB. Fiscal stimulus in Europe will bode well for risk assets like Industrials and Manufacturing and might also put a bottom in for the Euro should the narrative start to gain traction amongst the EU members.
POWELL TESTIFIES
Federal Reserve Chair Jerome Powell told Congress on Tuesday that the U.S. economy is in a good place, even as he cited the potential threat from the coronavirus in China and concerns about the economy’s long-term health. “There is no reason why the expansion can’t continue,” he said, repeating the central bank’s view that its current target range for short-term borrowing costs, between 1.50% and 1.75%, is “appropriate” to keep the expansion on track.
Lawmakers also peppered Powell with questions ranging from the Fed’s injections of liquidity into short-term funding markets to climate change to the community reinvestment act (CRA) to the space economy. Powell’s answers stuck largely to the script. He defended the Fed’s plan to ease strains in the banking system with Treasury bill purchases and repo operations and said the central bank will likely reach an appropriate level of reserves around mid-year.
IMPACT: President Donald Trump reiterated his criticism that the Federal Reserve has kept interest rates too high and seemed to say the U.S. central bank’s chair, Jerome Powell, had hurt stock prices during his testimony to Congress on Tuesday. Powell stuck largely to script and any impact on the market was negligible.
DAY AHEAD
Considering the severity of the virus situation and the expected economic consequences from a disruption in global supply chains and trade, risk appetite remains healthy. Emerging Market currencies are getting some healthy bids and look to continue to strengthen against the Dollar.
Powell will appear before the Senate Banking Committee later today, as part of his two-day testimony.
SENTIMENT
OVERALL SENTIMENT: With more production facilities and ports reopening in China, market sentiment continues to improve. In the short term, the strength of the US market will continue to support the risk sentiment. The risk for the Asian economies remains. Singapore, in particular, is now facing travel restrictions from various countries as the spread of the virus shows no sign of slowing.
i.e. CCY, Ticker (Short-Term: 1-3 MONTHS, Medium-Term: 3-6 MONTHS, Long-Term: 6-12 MONTHS)
FX
US DOLLAR, USD (Neutral, Neutral, +ve)
JAPANESE YEN, JPY (+ve, +ve, neutral)
EURO, EUR (Neutral, Neutral, Neutral)
STERLING, GBP (Neutral, Neutral, Neutral)
CANADIAN DOLLAR, CAD (-ve, -ve, Neutral)
AUSTRALIAN DOLLAR, AUD (-ve, Neutral, Neutral)
NEW ZEALAND DOLLAR, NZD (-ve, Neutral, Neutral)
SWISS FRANC, CHF (+ve, +ve, neutral)
MARKETS
S&P 500, SPX (+ve, +ve, +ve)
NIKKEI 225, JP225 (Neutral, -ve, -ve)
SHANGHAI COMPOSITE, SSEC (-ve, -ve, Neutral)
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