The Weekly Wrap – The EUR and Yen Come Out on Top as the Equity Markets Hit Corrective Territory

The Stats

It was a relatively busy week on the economic calendar, in the week ending 28th February.

A total of 56 stats were monitored, following the 72 stats in the week prior.

Of the 56 stats,  26 came in ahead forecasts, with 21 economic indicators coming up short of forecast. 9 stats were in line with forecasts in the week.

Looking at the numbers, 25 of the stats reflected an upward trend from previous figures. Of the remaining 31, 25 stats reflected a deterioration from previous.

For the Greenback, it was a particularly bearish week, as the markets reversed bets that the U.S economy would be unscathed from the spread of the coronavirus.

Not only did economic data continue to disappoint, but the markets also raised the probability of multiple rate cuts by the FED.

When gold takes a tumble as investors look for liquidity to meet margin calls, it’s never a good thing…

The Dollar Spot Index fell by 1.21% to end the week at 98.132.

Out of the U.S

It was a quiet first half of the week, with economic data limited to February consumer confidence figures.

A slight uptick in consumer confidence had a muted impact on the dollar on Tuesday.

Market risk aversion and updates from the U.S on the coronavirus pinned the Dollar back early in the week.

In the 2nd half of the week, durable goods orders on Thursday also failed to impress ahead of a busy Friday.

While core durable goods orders rose by 0.90% in January, durable goods orders fell by 0.2%, sending mixed signals to the market.

At the end of the week, the annual rate of inflation continued to fall short of the FED’s 2% objective.

Personal spending rose by just 0.2% in January, which was softer than a 0.4% rise in December.

Chicago PMI numbers were somewhat better than anticipated, however, with the PMI rising from 42.9 to 49.0.

The February numbers suggested that next week’s ISM numbers may not be as dire as the Markit PMI numbers.

It wasn’t enough to support the U.S equity markets or the Dollar, however.

Housing sector numbers and 2nd estimate GDP numbers for the 4th quarter had a muted impact in the week.

In the equity markets, the Dow slumped by 12.36%, with the S&P500 and NASDAQ tumbling by 11.49% and by 10.54% respectively.

Out of the UK

It was a particularly quiet week on the economic calendar.

There were no material stats to provide the Pound with direction.

The lack of stats left the Pound in the hands of Brexit chatter as the EU and Britain prepare to return to the negotiating table.

A visit to $1.30 levels early in the week was brief, with the British Prime Minister spooking the markets once more.

Johnson spoke on Thursday, stating that Britain would walk away from negotiations should there be a lack of progress by the end of June.

With so much to iron out and the 2-sides worlds apart, hopes of having a framework in place by June are slim…

In the week, the Pound fell by 1.09% to $1.2823, with the FTSE100 ending the week down by 11.12%.

Out of the Eurozone

It was a relatively quiet start to the week economic data front.

Germany was in focus, with February IFO Business Climate Index figures and 2nd estimate GDP numbers in focus.

On the positive side for the EUR was a slight pickup in the Business Climate Index. This came off the back of a rise in optimism, as the current assessment index eased back.

Ultimately, however, March numbers will give a better indication of whether the coronavirus has affected business sentiment.

With GDP numbers in line with 1st estimates, the focus then shifted to a busy Friday.

Key stats included French consumer spending and German unemployment numbers.

While Germany’s unemployment rate held steady, French consumer spending took a hit in January. The slide came ahead of the coronavirus news, which suggests that a further pullback in spending could be on the cards.

The stats failed to influence, however, as the markets punished the Dollar through much of the week.

Prelim inflation figures out of Spain and France, French GDP numbers and finalized consumer confidence figures out of the Eurozone also failed to move the dial…

On the monetary policy front, ECB President Lagarde spoke late in the week. She was of the view that the virus had yet to impact inflation to the point where the ECB needs to step in…

That is in stark contrast to the outlook towards FED monetary policy…

For the week, the EUR rose by 1.65% to $1.1026.

For the European major indexes, it was a particularly bearish week. The DAX30 tumbled by 12.44%, with the CAC40 and the EuroStoxx600 ending the week down by 11.94% and 12.25% respectively.

Elsewhere

It was a particularly bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 28th February, the Aussie Dollar slid by 1.69% to $0.6515, with the Kiwi Dollar down by 1.62% to $0.6246.

For the Aussie Dollar

It was a relatively quiet week for the Aussie Dollar on the economic data front.

Key stats included 4th quarter construction work done and private new CAPEX figures on Wednesday and Thursday.

Both sets of figures disappointed, though a 2.8% slide in new CAPEX in the 4th quarter was more alarming.

RBA monetary policy has not only been in favor of consumer spending but also business investment. The slide suggests a lack of confidence and raised the prospects of a near-term rate cut.

On Friday, the private sector credit figure also failed to impress, with total credit rising by just 0.3% month-on-month.

With the numbers skewed to the negative, risk aversion added to the downside in the week.

Negative sentiment towards the economic outlook led to a slide in commodities and commodity currencies.

For the markets, uncertainly over when the spread of the coronavirus will abate also influenced.

For the Kiwi Dollar

It was a relatively quiet start to the week on the economic colander.

4th quarter retail sales figures failed to impress at the start of the week, with sales rising by 0.7%. In the 3rd quarter, retail sales had risen by 1.7%.

Later in the week, trade data and business confidence figures delivered mixed results that added pressure on the Kiwi.

While trade exports to China rose further, January’s trade was not impacted by China’s shut down.

Business confidence figures, however, suggested some doom and gloom ahead.

With exports to China accounting for 27% of total New Zealand exports in January, it could be quite dire reading next month…

For the Loonie

It was a busy week on the economic calendar. Key stats included wholesale sales figures on Monday and RMPI and GDP numbers on Friday.

A rise in wholesale sales in December failed to provide support at the start of the week, as crude oil prices got hammered.

Market fears of a marked slowdown in the global economy, stemming from the spread of the coronavirus, weighed.

At the end of the week, with the Loonie already under the cosh, GDP numbers also failed to support.

While the economy fared better in December, there was a marked slowdown in the 4th quarter. When considering the economic disruption anticipated in the 1st quarter and beyond, it doesn’t look good.

RMPI numbers also failed to impress, with the RMPI falling by 2.2% in January, reversing most of a 2.7% rise in December.

With the BoC in action next week, the chances of a rate cut certainly jumped in the week…

The Loonie slid by 1.38% to end the week at C$1.3407 against the Greenback.

For the Japanese Yen

It was a relatively quiet week on the data front.

The markets had to wait until Friday for key stats that had little to no influence on the Japanese Yen.

For the Government, the impact of the coronavirus on consumer spending is a blow following last year’s sales tax hike. That suggests that government support is likely to come.

In the meantime, however, retail sales fell by 0.4% in January, following a 2.6% slide in December.

The annual rate of core inflation also eased, with the Ku-area seeing core inflation easing from 0.7% to 0.5% in February.

With the jobs/applications ratio falling from 1.57 to 1.49, the only bright data set was industrial production.

A 0.8% rise in production in January was of little consolation, however, when considering the anticipated drop in demand.

Risk aversion ultimately drove demand for the Yen in the week, with concerns over the U.S economy restoring the Yen’s position as the “go-to” currency.

The Japanese Yen surged by 3.33% to end the week at ¥107.89 against the U.S Dollar. Risk aversion in the week weighed heavily on the Nikkei, which slumped by 9.59%, leaving the index down by 8.89% for February.

Out of China

There were no material stats to provide direction ahead of private sector PMIs on the weekend.

A lack of stats left updates on the coronavirus to provide direction that was ultimately positive for the Yuan.

In contrast, the sell-off across the global stock markets weighed on the CSI300 and Hang Seng, though they did fare better than the pack.

The CSI300 fell by 5.05%, with the Hang Seng falling by 4.32% in the week.

In the week ending 28th February, the Yuan rose by 0.50% to CNY6.9920 against the Greenback.

The Mid-Week Wrap – Asian Markets and Stocks

The last week of the month usually is pretty quiet. Is it also the case this week?

For the U.S Dollar

It was a quiet start to the week on the economic data front. The markets needed until Tuesday for consumer confidence figures that failed to impress.

We saw the Dollar under pressure at the start of the week, with last week’s PMI numbers raising the chances of a FED rate hike in the 1st half of the year.

The shift in sentiment saw demand for the Dollar ease early in the week. Following FED Chair Powell’s testimony, the markets had anticipated a resilient U.S economy. Recent economic indicators suggested otherwise, with the U.S private sector contracting in February.

Throw in the rising number of cases of the coronavirus and the CDC’s outlook and the U.S economy also faces headwinds.

Through the remainder of the week, inflation and personal spending figures on Friday will garner plenty of attention. Personal spending figures will be of particular interest as it will indicate any consumer concerns over the virus.

Ahead of the numbers, 2nd estimate GDP numbers for the 4th quarter are due out along with durable goods orders on Thursday.

Expect the durable goods orders to have a greater impact, as the markets look for coronavirus impact on demand.

For the EUR

It was also a relatively quiet start to the week. Germany’s business confidence 2nd estimate GDP numbers were in focus.

While 2nd estimate GDP figures were in line with 1st estimate, there was an improvement in business sentiment.

February’s IFO survey came ahead of the spread of the coronavirus through Europe, however, limiting any upside for the EUR.

Over the remainder of the week, the focus will shift to consumer spending and 4th quarter GDP numbers out of France. There are also unemployment numbers out of Germany to also consider.

For now, we’ve seen the EUR find support as the sentiment shifts towards the U.S economy. Ultimately, however, the Eurozone economy remains more at risk to a marked slowdown that that of the U.S, which suggests the upside to be limited.

A more material spread of the virus across the U.S, however, would alter that outlook.

For the Pound

It’s a particularly quiet week on the economic data front and there have been no material stats to provide support.

We saw the Pound bounce back to $1.30 levels on Tuesday following the EU member states desire to form an ambitious trade agreement with Britain.

That comes with strings attached, however, which Britain is unwilling to agree to.

On Thursday, the British government is due to announce its starting terms, which will give an idea of just how far apart the 2-sides are.

Expect reaction to influence the Pound over the remainder of the week.

Stocks go down due to the virus in an environment of no macroeconomic data releases. In the meantime, how have the commodity currencies reacted to the recent developments in the markets?

We saw the commodity currencies fair better in the early part of the week, in spite of the risk aversion.

This was largely due to the shift in sentiment towards the U.S economy and monetary policy

That being said, it’s still been a bearish week for the commodity currencies.

For the Aussie Dollar, new CAPEX figures for the 4th quarter failed to impress this morning.

With business investment on the slide, any slide in consumer spending would add further pressure on the RBA to make a move.

In the last meeting, the RBA had raised some concerns over the likely impact of the coronavirus on the global economy. Since then, we can expect that concern to have spiked as the virus reaches new countries.

It certainly looks set for a particularly dovish RBA next week, which should limit any upside for the Aussie Dollar.

Things are not much better for the Kiwi Dollar.

Retail sales rose by just 0.7% in the 4th quarter, following a 1.7% rise in the 3rd, with the numbers coming ahead of key stats on Thursday.

While January trade data delivered support, with exports to China on the rise once more in January, it was business confidence that weighed.

The trade figures failed to capture the effects of the extended Chinese New Year and quarantines across the country. February’s figures are expected to be quite dire, however, if business confidence numbers are anything to go by.

That leaves the Kiwi under immense pressure, with economic disruption expected to continue beyond the 1st quarter.

A slight decline in all of the commodity currency charts. Meanwhile, how have the major Asian countries fared during this period? I assume they have been hit the most by the coronavirus.

For the Japanese Yen

We saw the Japanese Yen find renewed interest this week, at the expense of the Greenback. With risk aversion continuing to plague the markets, the rise in the number of cases in the U.S and weak data provided the upside.

The markets had previously moved away from the Yen over concerns that the region would be harder hit by the virus.

This is likely to be the case, however, which should limit any return to ¥107 – 108 levels against the Greenback.

On the economic data front, retail sales and industrial production figures due out on Friday will unlikely reflect the effects of the virus.

Dire numbers, however, would suggest that the BoJ will need to make a move of some sort…

For the rest of the Asian Majors

Unsurprisingly, the rest of the Asian majors have struggled in the week.

We’ve seen the Taiwanese Dollar, Singapore Dollar, Korean Won, and Chinese Yuan struggle as disruption to trade is expected to hurt the respective economies.

Monetary and fiscal policy support has been delivered by a number of central banks in the region.

Uncertainty over the time frame involved, however, and how bad it could get continues to pressure the majors. This will likely continue near-term or at least until the pace of the global spread abates.

Yuan Rebounds After Coronavirus Fears Push Currency to Seven-Week Low

Triggering partial rebounds in the Australian dollar, South Korea won, Thai baht, and Indonesian rupiah. However, the yuan’s rebound may be short-lived if Chinese health authorities can’t adequately contain the domestic or international spread of coronavirus, an epidemic that the World Health Organization is now calling COVID-19.

If you’re concerned by the yuan’s recent bout of extreme volatility, you — as a small business owner or independent investor — may want to develop a hedging strategy to reduce foreign exchange (FX) risk. In particular, FX forwards are popular amongst traders or business owners who are looking to minimize their exposure to currency risk by locking in a favorable exchange rate.

What’s Next for The Yuan Against Major Currencies?

The yuan’s most recent decline, which passed key resistance thresholds to eventually bottom out at 6.866 yuan against the U.S. dollar, was broadly underpinned by two key events:

  • The first cause was the sudden surge in COVID-19 deaths and diagnosed cases in mainland China. At the time, domestic health authority reports indicated that the rate of new COVID-19 cases had peaked. When conflicting news dropped on already jittery investors, the subsequent market pullback created significant downward trading pressure on the yuan.
  • The second cause was the unexpectedly low levels of factory activity recorded in key industrial provinces. Although a considerable number of manufacturing plants have come back online, chronic labor force shortages and COVID-19 quarantine and prevention procedures continue to disrupt the resumption of full-scale business and manufacturing output.

At this point in time, any further forecasts regarding the value of the yuan are contingent on unreliable assumptions about the current scale of the COVID-19 outbreak and the success of China’s ongoing control efforts. Moreover, the yuan’s price will also be impacted by a range of conventional value modifiers, including China’s upcoming Foreign Direct Investment report and the success of the phase one trade deal recently signed between Beijing and Washington.

How Could You Have Benefited from the Yuan’s Dip?

If you’ve been keeping a close eye on USD/CNY trading charts, you may have viewed the yuan’s recent dip as a low-cost opportunity to lock in FX forwards or increase your foreign currency holdings. If the worst of the COVID-19 epidemic is behind us, then currency holders will likely see a sharp narrowing in the USD/CNY trading range.

Despite the ongoing local correction, technical analysis of the USD/CNY indicates that the dominant bull trend remains intact for the long-term. To restart channel breakout momentum, the pair will need to advance through a measured move and establish long-term support above 7.024. At the time of writing, the USD/CNY has punched above the psychologically important 7.000 range and closed at 7.033 yuan to the dollar.

Unfortunately, the yuan’s rebound may be showing signs of slowdown. Yesterday, the USD/CNY even dipped below key resistance around 6.700. Fortunately for chartists, buyback momentum for the region’s key trading pair remained firm, with surging trading volume leading a near-term rally past key technical indicators in the 6.740-6.750 trading range.

If the yuan manages to maintain bullish sentiment, it will likely secure comparable trading pair gains against other major currencies, including the Euro, Pound Sterling, and Australian Dollar. Given the strong long-term prospects of China’s equity markets, foreign exchange speculators and independent currency traders largely signaled “strong buy” during the dip, leading to a surge in low-cost yuan holdings.

Remember, technical prospects for a strengthening yuan are heavily dependent on the credibility of Chinese reports pertaining to the COVID-19 outbreak. China’s state health authorities have already been accused of lying about the situation in Hubei Province and misreporting COVID-19 case numbers. As of the time of writing, 72,438 COVID-19 cases have been recorded in China, resulting in 1,869 deaths.

Two Ways Businesses Hedge Against the Yuan’s Volatility When Trading in China

When assessed through the lens of a portfolio manager or commercial business owner, the yuan’s higher than usual volatility poses significant challenges from a currency risk perspective. For businesses that operate/invest in China or frequently convert between major yuan trading pairs, there are two main ways to mitigate currency risk.

1. Utilize FX Instruments to Directly Hedge Currency Risk

Given the appropriate expertise, FX trading instruments give investors or business owners a tremendous amount of flexibility to quickly adjust FX holdings and account for future currency risk. If your objective is to maximize the exchange rate conversion for future cash flow from the Chinese market, you can use FX forwards or spot trading contracts to lock in advantageous exchange rates.

2. Build a Portfolio Around Hedged Assets

Investing in hedged assets, such as hedged mutual funds or hedged exchange-traded funds, is one of the simplest methods of minimizing international or domestic currency risk. Unfortunately, because of their relative simplicity, hedged assets can be a sub-optimal option for currency risk management. Higher expense ratios and a general lack of versatility are the main downsides to using hedged assets. For the most part, business owners tend to have the most difficulty developing a portfolio-based hedging strategy. This is because pre-hedged indices or sector-specific benchmarks are rarely able to simulate China’s trillion-dollar business operations or currency trading markets.

Key Takeaway: Prepare for Future Yuan Volatility

Despite the yuan’s recent rebound, coronavirus-induced volatility is expected to continue affecting Chinese markets for at least the next six months. Implementing an FX risk management strategy will not only limit your exposure to future downward movements in the yuan, it will also give you the means to quickly adjust your FX contracts or currency holdings to benefit from time-sensitive rebounds in key yuan trading pairs.

The Weekly Wrap – U.S PMIs and the Coronavirus Drive Risk Aversion

The Stats

It was a busy week on the economic calendar, in the week ending 21st February.

A total of 72 stats were monitored, following the 46 stats in the week prior.

Of the 72 stats, 39 came in ahead forecasts, with 24 economic indicators coming up short of forecast. 9 stats were in line with forecasts in the week.

Looking at the numbers, 27 of the stats reflected an upward trend from previous figures. Of the remaining 45, 36 stats reflected a deterioration from previous.

For the Greenback, it was a particularly bullish week, with risk aversion and positive economic data driving demand for the Dollar. That was the story until Friday when the Dollar hit speed bumps as private sector activity waned.

The Dollar Spot Index rose by 0.21% to 99.337, in the week.

Out of the U.S

In the 1st half of the week, key stats in the week included manufacturing numbers out of NY State and January wholesale inflation figures.

Any concerns over the impact of the coronavirus on U.S manufacturing sector activity would have eased. The Index jumped from 4.80 to 12.90 in February.

Wholesale inflationary pressures were also on the rise. Core producer prices rose by 0.5% in January, following a 0.1% rise in December. Producer prices also rose by 0.5%, following a 0.1% increase in December.

The focus then shifted to Philly FED Manufacturing and U.S prelim private sector PMI numbers for February.

On Thursday, the Philly FED Manufacturing Index jumped from 17.0 to 36.7 in February. Economists had forecast a fall to 10.0.

Private sector PMIs failed to impress on Friday, however.

The all-important U.S service sector contracted in February. According to prelim February figures, the Services PMI fell from 53.4 to a 76-month low 49.4.

Things were not much better for the manufacturing sector, with the PMI falling from 51.9 to 6-month low 50.8. As a result, the U.S Composite Output Index slumped to a 76-month low 49.6.

Friday’s numbers will have created some uncertainty over the U.S economic outlook that struggled in February. The ISM numbers will be key… Did the FED Chair get it that wrong?

On the monetary policy front, the FOMC meeting minutes from Wednesday had limited impact. FED Chair Powell’s testimony from last week was considered more current.

In the equity markets, the Dow fell by 1.38%, with the S&P500 and NASDAQ down by 1.25% and by 1.59% respectively.

Out of the UK

It was a busy week on the economic calendar.

In the early part of the week, employment and inflation figures provided direction.

In December, average wages plus bonuses rose by 2.9%, easing from 3.2% in November. While wage growth slowed, employment continued to rise at a solid clip in the final quarter. Employment rose by 180k in December, following on from a 208k rise in the 3-months to November.

A 5.5k rise in claimant counts in January suggests that the unemployment rate will hold steady at 3.8%.

On Wednesday, inflationary pressures picked up at the start of the year, with the annual rate of inflation accelerating to 1.8%.

While the stats were skewed to the positive in the 1st half of the week it was not enough to support the Pound, however.

In the 2nd half of the week, retail sales and private sector PMI numbers also impressed.

Core retail sales rose by 1.6% in January, with retail sales rising by 0.9%, the pickup coming in spite of rising consumer prices.

Wrapping things up on Friday, private sector PMI numbers delivered support to the Pound.

The Manufacturing PMI rose from 50.0 to 51.9, while the Services PMI fell from 53.9 to 53.3, leaving the Composite unchanged at 53.3.

Upbeat stats in the week further eased any expectation of a BoE rate cut near-term, leading the Pound back to $1.29 levels.

Outside of the numbers, Brexit chatter was also in focus as France looked to send a strong message of intent across the Channel.

Britain’s chief negotiator David Frost delivered Britain’s goals on Monday, while also stating that signing up to EU standards would defeat the purpose of Brexit. The comments came in response to warnings from the French government as the EU and Britain prepare to begin trade negotiations…

France’s warnings and Britain’s stance suggest a tough time ahead, which left the Pound in the red early in the week.

In the week, the Pound fell by 0.64% to $1.2964, with the FTSE100 ending the week down by 0.07%.

Out of the Eurozone

It was a quiet start to the week economic data front, with economic data limited to economic sentiment figures out of Germany and the Eurozone.

The numbers were skewed to the negative, with investor concerns over the effects of the coronavirus weighing.

The Eurozone’s Economic Sentiment Index fell from 25.6 to 10.4, with the German Sentiment Index falling from 26.7 to 8.7.

In the 2nd half of the week, however, the stats were skewed to the positive.

Consumer confidence seemed unaffected by the spread of the coronavirus. Germany’s GfK Consumer Climate Index fell by 9.9 to 9.8, with the Eurozone’s consumer confidence rising from -8.1 to -6.6.

At the end of the week, prelim private sector PMI numbers were also skewed to the positive.

Manufacturing sector activity picked up in February, with the Eurozone’s PMI hitting a 12-month high.

While the Eurozone’s Composite rose from 51.3 to 51.6, it wasn’t all smooth sailing, with new orders continuing to weigh.

Finalized inflation figures from member states and the ECB monetary policy meeting minutes had a muted impact on the EUR.

For the week, the EUR rose by 0.15% to $1.0847, with a 0.57% rally on Friday reversing losses from the week.

For the European major indexes, it was a bearish week. The DAX30 fell by 1.20% to lead the way, with the CAC40 and the EuroStoxx600 ending the week down by 0.65% and by 0.61% respectively.

Elsewhere

It was a particularly bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week, the Aussie Dollar fell by 1.30% to $0.6627, with the Kiwi Dollar down by 1.38% to $0.6349.

For the Aussie Dollar

It was a relatively quiet week for the Aussie Dollar on the economic data front.

Key stats included 4th quarter wage growth numbers on Wednesday and January employment figures on Friday.

It was a mixed set of numbers, however. Wage growth continued to grow at a tepid pace of 0.5%, with the unemployment rate rising from 5.1% to 5.3%.

There was a 46.2k jump in full-time employment to limit the negative sentiment towards the Aussie Dollar on the day.

On the monetary policy front, the RBA Meeting Minutes added further pressure on the Aussie Dollar on Tuesday.

The rate statement released on 4th February had shown little concern over the likely effects of the coronavirus on the economy.

The minutes, however, sent a different message, with members also considering a rate cut at the meeting. All of this was in spite of the RBA expecting economic activity to pick up in the 2nd half of the year.

With the RBA minutes on the dovish side, risk aversion in the week added pressure on the Aussie Dollar. While numbers out of China showed the spread of the coronavirus slowing, cases elsewhere caused alarm.

For the Kiwi Dollar

It was a particularly quiet start to the week on the economic colander, with no material stats to provide direction.

A likely extended period of soft demand for goods from New Zealand weighed on the Kiwi Dollar in the week.

China’s measures to continue to contain the spread of COVID-19 is expected to weigh on demand for overseas goods.

In the 2nd half of the week, 4th quarter wholesale inflation figures on Thursday did little to support the Kiwi. Input price inflation eased from 0.9% to 0.1% in the 4th quarter. Economists had forecast an easing to 0.4%.

For the Loonie

It was a busy week on the economic calendar. Key stats included January inflation figures on Wednesday and December retail sales figures on Friday.

The numbers were mixed in the week, with a pickup in the annual rate of core inflation providing support mid-week.

Retail sales figures did little to impress, however, with retail sales stalling in December.

While the stats did provide direction, crude oil supply disruption provided support.

The Loonie rose by 0.20% to end the week at C$1.3225 against the Greenback.

For the Japanese Yen

It was a busy week on the data front.

At the start of the week, 4th quarter GDP numbers and finalized industrial production figures caught the markets off-guard on Monday.

In the 4th quarter, the economy shrank by 1.6%. Compared with the 4th quarter of 2018, the economy slumped by 6.3%.

Economic woes were attributed to the sales tax hike, typhoons, and the U.S – China trade war.

Of concern for the BoJ will be the fact that the contraction came before COVID-19 began to spread…

On Wednesday, trade figures were not much better, with Japan’s trade deficit widening from ¥154.6bn to ¥1,312.6bn.

While exports fell by 2.6% year-on-year, the numbers were not as bad as had been anticipated. February figures will give the markets a better idea of what impact the coronavirus has had on the Japanese economy.

At the end of the week, it was weak stats once more, however.

Japan’s Manufacturing PMI fell from 48.8 to 47.6, with the Services Sector PMI falling from 51.0 to 46.7.

Market jitters over the spread of the coronavirus weighed heavily on the Yen. Rising cases in Japan and the region led to the markets seeking safety elsewhere.

Economic data out of Japan suggested that there is more trouble ahead for the Japanese economy. Uncertainty over the coronavirus spread across the region was also a key driver to the Yen’s demise.

The Japanese Yen fell by 1.67% to end the week at ¥111.61 against the U.S Dollar.

Out of China

Economic data was on the lighter side in the week, with key stats limited to new loans for January.

New loans surged by CNY3,340.0bn in January, following a CNY1,140.0bn rise in December.

Outside of the numbers, the PBoC cut loan prime rates on Thursday, though not by the extent that the markets had anticipated.

The PBoC cut 1-year loan prime rates from 4.15% to 4.05%, with the 5-year LPR cut from 4.8% to 4.75%.

While the more modest cuts weighed on the markets on Thursday, updates on the coronavirus provided support. The number of cases in China was in decline in the week, with the number of deaths also falling.

Earlier in the week, fiscal and monetary policy support had given the Yuan a boost before a pullback to CNY7 levels against the Dollar.

The CSI300 rallied by 4.06%, while the Hang Seng slid by 1.82% in the week.

In the week ending 21st February, the Yuan fell by 0.58% to CNY7.0271 against the Greenback.

Risk-off Thursday: Fade Trade or Call It a Week

It was a Risk-off Thursday, with the S&P500 down 0.5% heading into the close and Europe’s Stoxx600 closed 0.9% lower. US 10y yields slipped 5bps to 1.52%, levels not seen since early February. While the market has been prepared to look through rising coronavirus infection rates as a brief affair, news direct from US corporates about supply-chain disruptions impacting revenue has weighed. After Apple downgrade on Wednesday, Procter and Gamble warned Thursday about lower Q1 sales and earnings, citing supply chains, and reduced store traffic in China.

Still, Chinese officials indicated that new case numbers of the coronavirus dropped sharply Wednesday to 394 from 1749 a day before. Consistent with that theme, there was a better tone in Asia, with the Shanghai composite up 2.3% and modest gains for the Nikkei. Oil also rose by 1.6%.

The US stocks fell on concerns the coronavirus will exert a heavy toll on earnings, with tech leading declines.

Although some market participants were quick to dismiss the Apple warnings, clearly, it has dented the market bravado as investors aren’t nearly so eager to buy the dip, suggesting that a level of discontent, especially around earning, is starting to set in.

And now with investor’s inboxes stuffed to the brim with research reports suggesting “Covid -19 could significantly affect short term earnings: Reiterate Sell.” the market could go in a de-risking mode. And if the Teflon heavyweight tech giants of the US market start to wobble in a domino effect, things could turn ugly quickly.

It took Apple to do what the coronavirus couldn’t – make stocks feel a little queasy. While the market seemed to absorb the initial apple shock in its typically pleasant manner, but it’s the aftershocks when corporate America starts waving the warning flags in tandem that could prove to be the biggest gut check.

Traders are very much creatures of habit, and if the past few Friday’s are any indication for today, we should expect risk to trade better offered and with South Korea emerging as the new cluster hotbed with confirmed cases of COVID-19 more than tripling in two days and the outbreak spreading to non-Seoul areas it could be cause for concern especially  among locals, and thus the negative impact on the Korean economy is set to continue,

While the virus headcount stories don’t carry the same headline gravitas, it’s still a focal point while the economic data fears continue to simmer on the back burner. It will soon be the fear of the data unknowns’ that will keep investors awake at night. And while wobbly data hasn’t stopped the market from frustrating the bears this year, something tells me it could be a lot different this time around.

For the proper record, the dollar rose against every G-10 peer save the Swiss franc, with the Aussie and kiwi faring the poorest. Gold hit a seven-year high, and oil jumped. Asian equity futures are pointing lower.

Oil markets

Oil is trading on improved footing as the demand outlook betters as mainland official reports suggest that new case numbers of the coronavirus continue to fall sharply. But bolstering the recent price recovery, inventory figures showed the US crude stockpiles rose less than expected last week, tempering some of the more exaggerated fears about the impact of the coronavirus.

In early Asia trade, however, prices are well of the NY. Session highs. And as has been the case on prior Fridays since coronavirus worries hit, is that Oil prices tend to trade more tightly correlated to risk sentiment as cross-asset investors divest equity positions. They then move into gold and bonds to hedge the weekend risk.

Still, new virus hotbeds are emerging in South Korea and Japan (Colossal oil importers in their own right). So, this could keep Asia oil risk a bit more defensive than in US markets as anxiety is creeping back into play amid the spike in coronavirus infection outside of China.

Gold Markets

Views on the spread and potential economic disruption of COVID-19 have spread quickly, and gold has been in massive demand as a result. And anxiety is creeping back into play amid the spike on coronavirus infection outside of China. And since it might be premature y to fully account for the medical, let alone the economic impact of the epidemic, gold could continue to outshine all others.

While COVID-19 has been a critical reason to buy gold, there is more to the gold run than meets the eye, as news, any upcoming FOMC reformulation of the inflation target methodology may have a more significant bullish impact on gold.

Currency markets

The Yen and the GPIF

That was four standard deviations 2-day move in USDJPY. Those are rare, obviously, and there are only five unique occurrences of a 2-day, 4SD move higher. The current movement, while epic, is more complicated to explain but impossible to ignore. The tricky thing this time is that it’s not like the BOJ easing moves (2013 and 2014) or the Abe announcement of Abenomics in 2012. Yesterday the proximate trigger wasn’t clear as my memory banks failed the pique portfolio rebalancing story that has suddenly caught the market’s imagination for reasons nobody fully understood yesterday; it makes a bit more sense today after going over the data.

Capital outflows saw the Yen dislocate from risk appetite. Data overnight show Japanese funds bought JPY3trn in overseas debt last two weeks. This is the most significant jump since Sept 18 and shattered vital resistance levels as the market wasn’t ready for the furious buying frenzy with some large traders hedged long Yen has a haven and got stopped into trades.

GPIF is set to conclude its five-year asset mix review in February or March (I don’t have the exact date or even if its concluded), where they are expected to announce a higher benchmark allocation for foreign bonds. If other pension funds follow suit, which is typical for Japanese funds to pursue the GPIF lead, that could add up to more than USD 100 billion of outflows with a good chunk earmarked for the US Treasury

So, the USDJPY move could be nothing more sinister than the market getting caught off guard while Tokyo banks went on a USDJPY buying frenzy hedging GPIF foreign allocation flows.

Still, with Japan’s economy in the tank, the direction of travel makes sense.

The Ringgit

Indeed, it was a gnarly day for the Ringgit right out of the gates yesterday amid mounting economic concern from China and now with Japan about to hit the skids; the question is who’s next? While slower growth in China will have a broad-based impact on ASEAN economies as supply chain disruptions affect exports while commodity dislocations weigh on inflation. And now with Japanese teetering on the cliff edge of recession. It suggests demand for safe-havens rather than riskier ASEAN assets will likely be the name of the game over the short term, at least.

RMB had not been a significant underperformer until yesterday, as it seems like a reality check of sorts is hitting. Yuan markets had been are blissfully ignoring a lot of economic negativity, thanks to the PBoC smokescreens. Now, to assume the near-term Yuan slide is by and large over could be wishful thinking as we still have the lingering aftershocks to consider.

With the RMB trading, lower local traders were more apt to sell MYR rather than buy due to the RMB correlation factor.

The PBoC didn’t do enough on the policy front either yesterday.

Local pain trades

THB, CNY, and KRW are most heavily positioned in bond and equity market by historical standards (foreign ownership shares converted to % ranks) take the sensitivity of currencies to flows into account that would indicate the THB and KRW are most at risk from potential equity/debt outflows.

 

The Mid-Week Wrap and Look Ahead – 20th January 2020

The middle of February has been reached. How have the major currencies been doing in regards to data during the last half week?

For the U.S Dollar

It’s been a quiet start to the week for the U.S Dollar, with the U.S holiday on Monday.

In spite of the quiet start, economic data impressed on Tuesday, with the NY Empire State Manufacturing Index on the rise in February.

The figures supported FED Chair Powell’s outlook towards the U.S economy, which he expected to remain resilient.

A pickup in manufacturing sector activity as other economies see manufacturing woes was certainly impressive.

Coupled with risk aversion on Tuesday, stemming from the prospect of COVID-19 having a greater impact on the global economy, the Dollar rallied by 0.44% on Tuesday to reverse losses from the start of the week.

Over the remainder of the week, there’s still plenty to consider.

On Wednesday, the FOMC meeting minutes are due out after housing sector figures due out earlier in the day.

The focus will then shift to Philly FED Manufacturing Index figures on Thursday and private sector PMIs on Friday.

Expect February’s prelim Service PMI to have the greatest impact.

For the EUR

It’s also been a relatively quiet start to the week on the economic calendar.

ZEW Economic Sentiment figures out of Germany and the Eurozone weighed on the EUR on Tuesday.

Concerns over the impact of COVID-19 on global trade had a greater impact on sentiment than had been anticipated.

A combination of disappointing data and risk aversion on Tuesday saw the EUR pullback to $1.07 levels.

Apple’s earnings warning on Monday delivered the markets with a reality check early in the week.

The Eurozone economy is certainly more reliant upon global trade. With the Eurozone economy stuttering in the 4th quarter, it’s not looking good for H1 2020, even with fiscal and monetary policy support.

Over the remainder of the week, German and Eurozone consumer confidence figures will influence ahead of private sector PMIs on Friday.

On the monetary policy front, the ECB monetary policy meeting minutes shouldn’t provide too many surprises…

For the Pound

January claimant count figures and another sizeable jump in employment provided support on Tuesday. The better than expected numbers left the unemployment rate at 3.8% in December.

While wage growth was on the rise, wages + bonuses eased in December, limiting any major upside for the Pound.

Ultimately, negative chatter from France and Britain’s chief trade negotiator David Frost weighed on the Pound early in the week.

France talked of tough talks ahead.  Frost made it clear that Britain was not interested in having strings attached.

Through the remainder of the week, inflation figures are due on Wednesday, with retail sales figures due out on Thursday.

Positive numbers would leave monetary policy out of the equation near-term, allowing the markets to focus on Brexit…

It appears that, with the exception of the GBP, most currencies had no macroeconomic data impacting them. In the meantime, how have commodity currencies behaved?

It’s been a choppy week for the commodity currencies, with the Aussie Dollar and Kiwi Dollar under pressure.

While there were no material stats due out of Australia or NZ to provide direction, sentiment towards the economic outlook weighed on Tuesday.

For the Aussie Dollar

The RBA meeting minutes from 4th February added further pressure on the Aussie Dollar on Tuesday. While the RBA statement had been somewhat calm over the likely impact of COVID-19, the minutes suggested otherwise.

There was also a discussion on cutting rates further, which added further pressure on the Aussie Dollar.

Through the remainder of the week, 4th quarter wage growth figures on Wednesday and employment figures on Thursday will provide direction.

For the Kiwi Dollar

There were no stats to provide direction through the 1st half of the week. That didn’t stop the Kiwi from sliding, however. Economic disruption in China that extends beyond the 1st quarter will have a material impact on the NZ economy.

At the end of last year, China accounted for 28% of NZ exports. That’s quite a substantial number…

Through the remainder of the week, 4th quarter wholesale inflation figures will provide direction on Thursday.

Ultimately, however, it will be sentiment towards the global economic outlook that will ultimately drive the pair. Any pick in the rate of infections in China and beyond would be negative.

It appears that the commonwealth currencies have traded flat. What about the dominant currencies in Asia, the Yen, and the Yuan?

For the Japanese Yen

4th quarter GDP numbers on Monday sounded the alarm bells. A 1.6% contraction in the 4th quarter came ahead of what is likely to be an even tougher 1st quarter.

While typhoons, a sales tax, and the U.S – China trade war weighed, its COVID-19 that will hurt quite possibly into Q2.

On Wednesday, trade data came in better than expected though the trade deficit saw a marked widening in January.

Exports fell by 6.4% to China, by 7.7% to the U.S and by 5.4% to Germany.

While the stats were skewed to the negative, the Yen continued to find support as risk aversion gripped the markets early in the week.

Expect more of the same through the remainder of the week. The BoJ must be under some pressure to make a move, however…

For the Chinese Yuan

There were no material stats to provide direction, leaving the Yuan in the hands of risk appetite.

Mixed sentiment towards China’s economic outlook and COVID-19 updates provided direction.

The government announced tax and fee cuts, with the PBoC allowing banks to let NPLs rise to support the economy.

In spite of the support, the Yuan was on the back foot in response to Apple’s earnings warning…

Disruption to the Chinese economy and the region may well be greater than currently anticipated.

Expect the PBoC and Beijing to continue to look to deliver support. This may be positive near-term, but a weakening in the Yuan will also be needed.

On Thursday, the PBoC is in action, with the markets expecting loan prime rates to be cut further.

Asia Open : It’s Not Where It’s Been, Its Where It’s Going “Earnings Don’t Move The Overall Market; It’s The Federal Reserve Board”

 “Earnings don’t move the overall market; it’s the Federal Reserve Board… focus on the central banks and focus on the movement of liquidity; most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.” (Stanley Druckenmiller some would say the greatest money manager alive) 

It’s not where it’s been, its where it’s going! 

After returning from holiday, US markets were weaker Tuesday. The S&P500 was down 0.2%, heading into the close, and US 10Y yields fell 3bps to 1.55%. 2s5s has inverted since last Thursday and slipped further into negative territory overnight, while the 2s10s curve is at its flattest seen all year. The risk-off sentiment was widespread, but not deep, European and Asian equities fell, oil slipped, and gold lifted 0.9%. All attributed to the fact that sentiment was dented by Apple, indicating it will likely not meet revenue projections for Q1 because of supply-chain disruptions due to the coronavirus.

However, the Apple disclosure wasn’t perceived as a massive surprise, given large parts of China are in lockdown. Still, price action will be critical, given the market has shaken off virus concerns so far, especially in the tech sector. And to that note, the warning failed to move the “growth trade” in aggregate lower on Tuesday.

None the less the news provided the equity market with its first real sentiment test, and it took Apple to do what the coronavirus couldn’t – make stock markets feel very queasy.

But any market wobble this year, whether from data-driven concerns or geopolitical events, has all been a “buy the dip” opportunities for investors primarily because worst-case scenarios were a long way from being realized. However, the Apple news is getting looked at differently because they are the first high profile company to come out and warn about the impact of the coronavirus. And for some, it could signal that fundamentals are starting to reassert themselves. The absence of which has left many an investor, especially those short stocks, scratching their head.

There has been much debate about the foundation of the equity market rally with virtually everyone blaming central bank policy for the continued risk-on moves as the hunt for yield and the overall demand for riskier assets outweighed the fundamentals.

But it is all about liquidity and momentum these days. While equity desks are not precisely hovering up the dip, the NASDAQ, which everyone should be paying attention to give its tech focus, has recouped earlier losses while the S &P 500 is only marginally down into the close.

But these markets are increasingly tricky, and while I won’t go as far as saying the days of the easy trades of hammering, the reversion button is gone. But the Apple guidance has done something that trade war, an actual war, and the coronavirus has failed to do, make traders think twice before smashing the big risk-reward reversion bets.

Oil markets

It was a noisy oil market overnight as investors were en masse taking the potential demand impact of Covid-19 more seriously.

But offsetting the Covid 19 rethink button, The Trump administration has imposed sanctions on the trading arm of Rosneft. Their Swiss trading arm has been Venezuela’s primary conduit for brokering cargos, which find their way predominantly to refineries in India and China. So, throttling this Asian supply channel will provide some support for oil prices.

But ultimately, it’s not Apple earnings reports rather the PBoC stimulus efforts that will drive the manufacturing rebound in China and fortify the supply chain dynamics which should underpin oil markets.

The first wave of China stimulus has been mostly monetary so far, and instead of sending commodities flying, it mainly propped up financial assets m, which was its primary purpose. Now its time to grease the wheels of the mainland industry, and don’t think the PBoC is going to sit in idle and watch the GDP guesstimates trickle lower, it might be time to get on board or risk getting left at the gas station.

Still, WTI below $51 is a dichotomy trade; the worse things get, the higher the prospect of an OPEC+ call to action is.

Gold 

A quality asset or hedge against the economic impact of the outbreak? A bit of both I would think.

Yesterday marked the 19th day in a row of gold ETF inflows. It appears that investors are continuing to seek gold as a quality asset or hedge against the economic impact of the outbreak. There is a significant appetite for this segment of the market to continue adding gold as a strategic part of the portfolio.

USD strength has probably restrained – but did not significantly impact – gold gains. Instead, bullion is finding the bulk of its support from lower equity markets. While a modest dip in yields also buttressing demand.

If it’s just an equity correlation, then gold will come off hard if the stock market does there usual buy the dip mode.

Apart from COVID-19 economic effects, Eurozone data remain weak. Still, the fear that the CDU crisis in Germany could spread across the EU has been underpinning gold support across Europe as political risk uncertainty comes back to the fore.

Also, COVID-19 will have a multi-faceted impact on growth in ASEAN this year, most immediately in the tourism and retail sectors. Policymakers are likely to respond to the virus with a mix of fiscal and monetary policy. Yesterday, South Korea, Thailand, and the Philippines central bank started signing from the same dovish song page, commenting that they are considering cutting interest rates, which is moderately bullish for gold prices.

And nudging gold along is that the December 2020 Fed Funds imply year-end Fed rates at 1.22% against 1.40% just 7 weeks ago – in other words, the market has gone to pricing 30bp from just 20bp worth of a Fed cut this year as US rate cut fever is starting to build on the back of COVID -19 concerns.

Currency Markets

The Euro 

EURUSD bounces are still very shallow, and there doesn’t seem much reason to buy it other than to defend against a possible short squeeze. German ZEW was worse than expected, while US Empire Manufacturing was stronger – so the story continues to work in favor of EURUSD bears.

Asia FX

In a classic case of getting too far over one’s skis, Asia FX trader had no choice to hit the reset button yesterday as USD dollar haven demand exploded higher versus the ASEAN basket. But probably more panic than logic as New COVID-19 cases in China continue to fall, pointing to signs of a peak in the outbreak. At the same time, Beijing’s emphasis on reaching key economic goals this year means more aggressive easing may be in store.

The Yuan

USDCNY ended up through 7 yesterday into the equity market close in China. There was a considerable outflow in equities yesterday after the market had filled the post-Chinese New Year gap.

But today is a new day, and as my mentor used to remind me decades ago, “it’s not where it’s been, son, its where it’s going.’

The Malaysian Ringgit

Risk markets appear to have stabilized, although the novel coronavirus outbreak will be a drag on growth in the near term, and economic uncertainty remains high despite a probable call to action from BNM. It is hard to say how the COVID-19 global health emergency will ultimately unfold – the situation remains fluid, which continues to complicate matters as its this specific level of uncertainty that has investors shying away for Malaysian assets and weighing on the ringgit.

Markets could remain in a risk-on risk-off mode for some time, but of immediate concerns, Korea’s 20-day exports on Feb. 21 is the first data point barometer of how the month is panning out. It will be an essential test of investors’ resolve. Still, with a good chunk of the post-coronavirus manufacturing rebound trades flushed, the ASEAN basket sell-off on a weaker than expected print might not be so fierce.

 

Asia Open: The Schitts Creek Scenario

*U.S. BOOSTING DUTY RATE ON EU-IMPORTED AIRCRAFT TO 15% FROM 10%

*CHINA REPORTS 2,009 ADDITIONAL CORONAVIRUS CASES FEB. 15

*TAIWAN REPORTS FIRST DEATH FROM NOVEL CORONAVIRUS

The Schitt’s Creek scenario

“Schitt’s Creek” is a Canadian TV comedy series about a wealthy video-store magnate Johnny Rose (Eugene Levy) and his family suddenly find themselves broke, and they are forced to leave their pampered lives to regroup in Schitt’s Creek. If you haven’t seen it give it a try

Stock Markets 

The US market is closed for Presidents Day, so in the absence of an unexpected headline shock action could be a bit muted as it typically is during a US holiday weekend

The growth over value theme continues to play out, and, as with the last few Fridays, there was little appetite to add to risk into the weekend.  still, the US market managed to post gains

The bad news is that on Sunday; authorities reported 2,009 new cases and 142 more deaths nationwide; the good news is, however, it represents a drop in new cases from the coronavirus outbreak for a third consecutive day.

This will be good news for the market to run with this morning and we should see the usually predictable unwinding of weekend defensive hedges out of the gates and the SPX should continue to plow higher on the “cleanest dirty shirt” argument for owning US assets, which is particularly salient at the moment given the likely asymmetric growth impact of the coronavirus shock. At present, the growth impact of the virus remains expected to be more severe in China (and hence in Germany) than in the US.

Fund flows continue to be supportive of the general risk-on theme. EPFR data showed $23.6bn flowed into fixed-income funds in the week ending Wednesday, the most significant inflow since 2001. I am surprised that fund flows into equities were not higher given the ongoing move. For now, equity markets remain in look through mode.

However, it’s not hard to be skeptical about just how much looking through investors will be willing to bare the cost of for the next few weeks, especially if China’s high-frequency data comes out worse than expected. Although, to be frank, I’m not really sure what to expect from the data, but if it comes out bad enough for confidence to plummet, investors could quickly find themselves up the creek ( Schitt’s Creek)without a paddle. Let’s face it, financial markets are not known for their rational thinking lately and given the 500 million or so mainlanders affected by the Covid19 quarantine, and it’s also not hard to come up with more downside risks than upside ones right now.

This is a tricky market environment. There isn’t intemperate fear, and there isn’t unreasonable optimism. The easy trades of reverting overextended markets are gone, which has turned traders very wary of taking on big wagers. While the virus stories don’t carry the same headline gravitas, it’s still a focal point while the economic data fears continue to simmer on the back burner. It will soon be the fear of the data unknowns’ that will keep investors awake at night. But that has not stopped the market frustrating the bears in the past and now feels no different. Depressing the returns available through the duration in risk-free government bonds creates incentives for investors to re-allocate capital to stocks even more so into the resilient US markets.

Oil markets

The oil price action continues to be swayed backward and forwards by news flow around the Covid-19 infection/death rates and the prospects of OPEC+ agreeing a quota cut to balance off the demand slowdown. However, with a reality check about to set in when the China high-frequency data start to roll in, and in the absence of the Russian compliance commitment, any excuse to sell still feels like the sentiment in the market right now. And while the worst is probably priced into the China equation, the convexity of global economic data to how much of the China economy comes back on-line should not be underestimated, especially with a reported 500 million Chinese lives touched by the quarantine. That over 1.5 times the US population!!

On Friday, oil market investors took solace after the US energy secretary noted only “slight reductions in production” from the coronavirus and that the agency is “not yet concerned about its ultimate impact. “After markets closed, the office of the US Trade Representative announced it would lift tariffs on aircraft imports from the EU, from 10 to 15% effective March 18, though it stopped short of raising higher tariffs on other goods.

Gold Markets

There’s more to the recent gold move that meets the eye. While retail sentiment seems to be now moving purely on the end of coronavirus headlines, long term strategic buyers are starting to take notice of a soft underlying read for US retail sales. The headline for January was in line, but the bit that matters for GDP – retail control – was weaker, recording a flat outturn against expectations of a 0.3%mom rise and with a sizeable downward revision for December. The recent trend has been weak: 3m annualized is only up 0.22% and the 6m annualized is down -0.12%, only the second negative reading since the GFC (the other was during the collapse in December 2018).While it is early in the quarter and retail sales are often revised, the next retail sales release on March 17 takes on added significance as it has the potential to impact the Fed’s current policy narrative.

And while analyst has been focusing on ASEAN central bank policy measures. It’s the Fed who is now wearing the yellow jersey in the rate cut peloton as there are far more cuts priced for the Fed than the other central banks. From the time coronavirus cases started to pick up in mid-January, the Fed went from being middle of the pack to now leading the pack at 36bp of cuts being priced. This is a bullish swing in the gold narrative

Also, the convexity of global economic data to how much of the China economy comes back on-line should not be underestimated, especially with a reported 500 million Chinese impacted by the quarantine.

With the US stock markets trading at record highs, and downside risks outnumbering upside one’s by a count of 2:1 according to my watch list. It’s not hard to figure out why Gold markets are bid.

With bond yields falling on coronavirus concerns and as the effects of existing tariffs make there way through the US economy .But when factoring in geopolitical tensions such as the recent standoff between the United States and Iran, a potential technological divergence between Washington and Beijing, and the possibility of a U.S.-EU trade war, gold should be on everyone’s radar

Stock market liquidity?

Liquidity on driving equity? That’s not what the chart below shows. The Fed’s balance sheet is pretty much unchanged so far this year and shrank over the latter stages of January. Same for reserves balances. Yes, both rose steeply in Q4 last year, but they haven’t made further progress this year.

Well, the markets will soon get to test the liquidity theory as The New York Fed reported it would lower its 14-day repo offerings by $5 bn, down to $25 bn through March 3, and then down to $20 bn from March 3 onward. The overnights will drop $20 bn to $100 bn maximum. On Thursday, the Fed provided $30 bn in 14d and $48.85 bn in overnight.

Still, its bill purchases hold at $60 bn/month, so perhaps the idea is to get back to a more conventional balance sheet management sooner rather than later.

Currency Markets

Asia FX

Mainland authorities have leaned mostly on targeted measures like individual re-lending facilities, with the macro policy response more fiscal (additional pre-financing quota for local governments) than monetary (net OMO injection of the only 140bn in the last two weeks), and USDCNY fix mostly been in line with the model, after the initial lowballing adjustment post-LNY. With RMB1.2tn of OMOs maturing early next week, the focus will be on whether PBoC rolls them using MLF, and at a cheaper price point (ahead of LPR reset on the 20th). The emphasis in rest of the region is on Singapore Budget (18th), Bank Indonesia MPC (20th), and BOK (27th)

Even although coronavirus risk premia are reducing and vols are taming there a gigantic swath of economic carnage left in Covid-19 wake so even with Hubei province not reporting fewer infections from the day before, its full steam ahead for the region’s economic stimulus plans

If the past week is any indication, investors are will be looking for a buying Asia FX opportunity but could remain cautious about adding more currency risk before assessing the depth of the economic fallout. But with regional policymakers taking protractive actionable measures to thwart of the legacy effects of Covid-19, this should be viewed as growth positive. But the market appears to lack a catalyst for a real trend, and I expect consolidation to continue until bluer skies look likely.

The Yuan

USDCNH slipped from the high of 6.9917 and traded at 6.9830-80 last Friday Asia morning but back up again in the NY time zone. There was no demand for long USD gamma, however. Instead with the curve pointing south implying that traders seemed to have priced in a potential RRR cut Friday, so when it didn’t come, forward points reverse higher and dragged spot along for the ride. The drop in the daily virus headcount is a positive for regional risk as the curve now refocuses on PBoC policy measures which should be bullish for the Yuan

The Ringgit

For the Ringgit, which is a mid-level carry currency, it very much relies on a pickup in growth expectations to recover sustainably. And with another rate cut looks largely priced into swap markets and out to 10Y on the bond curve and with 10Y MGS trading this week with yields through 3.0% to all-time lows, it might be up to equity flows to do much of the heavy lifting this week as perhaps offshore blond flows could turn more neutral from here after significant inflows in the past three months. Look for the Ringgit to take it’s lead from the Yuan today

The Thai Baht

The USDTHB continues to hold well above the 31.00 level as currency trader to a tee the negative tail to the Covid-19 outbreak is best expressed at this stage via being long USD vs. THB.

Singapore Dollar 

FX and rates curves in Singapore are mostly already pricing in a shift by MAS to neutral. While the reduction in new flu cases, ex-Hubei has already helped Asian FX consolidate. But if the response to SARS were any indication, it might take a ‘positive announcement shock’ like a lifting of the travel ban to get the Singapore dollar moving in the other direction.

G-10 Currency markets

The Yen

Why isn’t the Yen working? Don’t even get me going? Besides the fact, Covid -19 poses a significant near-term downside risk to Japan’s economy, negative rates, and a magnetic attraction to the 110 level have made it an expensive proposition to purchase in a panic and then sit on.

The Euro 

Any concerns about your short Euro position? You bet. Besides President Trump’s twitter feed set to exposed if the EURUSD breaches 108, the ECB’s strategic review has a hawkish bias, particularly given the current euro weakness. I think this supports the euro if this is the case G10 traders will take their cue for the rates markets as this should create a measurable bounce in near term EU interest rate yields. Still given the dismal economic outlook in Germany, given my current view, look to sell on rallies to the 1.09 handle, not before. While downside optionality volumes are exploding, cash remains a bit neutral at this point suggesting the market looks to well-positioned for a downside move, and in this low vol environment short term positioning looks a bit extreme at the moment

The Australian Dollar

The Aussie, which continues to trade super beta to China risk is punching higher this morning on improving regional risk sentiment as China reported a drop in new cases from the coronavirus outbreak for a third consecutive day.

 

The Week Ahead – Economic Data, COVID-19 Updates and Geopolitics in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 64 stats to monitor in the week ending 21st February. In the previous week, just 46 stats had been in focus.

For the Dollar:

It’s a relatively busy week ahead on the economic calendar.

Through the 1st half of the week, NY Empire State Manufacturing figures will influence on Tuesday, ahead of a busy 2nd half.

We saw Chicago PMI figures recently have a material influence on the Dollar and risk sentiment. Expect the same from the NY State figures.

On Wednesday, while wholesale inflation numbers are the key driver, housing sector figures will need to continue to support upbeat sentiment towards the sector.

On Thursday, the focus will then shift to the all-important Philly FED manufacturing numbers, which are due out ahead of a busy Friday.

While existing home sales figures will garner some attention, the U.S Services PMI will have the greatest impact on Friday.

For the housing sector, mortgage rates saw 3-consecutive weekly declines before a slight uptick last week, which should drive demand…

Outside of the numbers, expect market sentiment towards monetary policy and risk appetite to also influence.

The Dollar Spot Index ended the week up by 0.45% to 99.124.

For the EUR:

It’s a relatively busy week ahead on the economic data front.

The markets will need to wait until Tuesday to digest business sentiment figures out of Germany and the Eurozone. The ZEW number will influence and we can expect businesses to factor in the coronavirus spread this time around.

Germany’s ZEW Economic Sentiment figure will have the greatest impact.

The focus will then shift to Germany’s GfK consumer climate figures due out on Thursday. Consumer spending continues to be a key area of focus for the ECB, so we can expect sensitivity to the numbers this week.

Wrapping up the week, we’ve got prelim February private sector PMI numbers out of France, Germany, and the Eurozone.

Upward momentum will need to continue towards a return to growth in the manufacturing sector to support the EUR.

The spread of the coronavirus in China and beyond, however, may give the EUR another blow.

Germany’s manufacturing PMI and the Eurozone’s composite will likely have the greatest influence.

Barring material deviation from prelim, finalized inflation figures out of France, Germany, Italy, and the Eurozone will likely have a muted impact in the week.

The EUR/USD ended the week up down by 1.05% to $1.0831.

For the Pound:

It’s a busy week ahead on the economic calendar.

Key stats include employment and wage growth figures due out on Tuesday and retail sales figures due out on Thursday.

We saw last month’s employment figures temper market expectations of a BoE rate cut, which leaves the Pound exposed to this month’s numbers.

Off the back of labor market numbers, January inflation figures are due out on Wednesday that will also influence sentiment towards monetary policy. Forecasts are for an uptick in inflationary pressure that should further ease expectations of a near-term rate cut. Much will depend on employment and retail sales figures, however.

The retail sales figures will likely be the key driver on the data front. A bounce back in spending would support the BoE’s initial outlook on economic growth following Brexit.

Of less influence in the week is CBI Industrial Trend Orders due out on Friday.

Outside of the numbers, expect chatter on trade negotiations to also influence. While there may be no progress with the EU, progress elsewhere is a must early on.

The GBP/USD ended the week up by 1.20% to $1.3047.

For the Loonie:

It’s a busy week ahead on the economic calendar.

December manufacturing sales figures due out on Tuesday will garner some attention ahead of an important 2nd half of the week.

Sales are forecast to fall by a further 0.2% in December, following a 0.6% slide in November. Positive numbers would be needed to deliver the Loonie with support.

In the 2nd half of the week, January inflation figures on Wednesday and December retail sales figures on Friday will be key.

A negative set of numbers and the BoC may well have a green light to ease policy further….

Outside of the numbers, the news wires and sentiment towards the global economy and oil consumption will also be key.

The Loonie ended the week up by 0.42% to C$1.3252 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s another relatively quiet week ahead.

Key stats include 4th quarter wage growth figures due out on Wednesday and January employment numbers due out on Thursday.

Expect both sets of numbers to influence.

Wage growth has been tepid, which has raised concerns over the outlook for domestic consumption.

The RBA sees that the current low in interest rates and a pickup in wage growth would drive spending.

On Thursday, the employment numbers will also need to reflect a tightening in the slack to support a positive outlook on wage growth.

While the numbers will influence, expect news from China and any further moves by Beijing and the PBoC to deliver support.

The Aussie Dollar ended the week up by 0.61% to $0.6714.

For the Kiwi Dollar:

It’s another quiet week ahead on the economic data front. Key stats are limited to 4th quarter wholesale inflation numbers due out on Thursday.

We can expect updates from China and beyond on the impact of the coronavirus on productivity to be key, however.

The Kiwi Dollar ended the week up by 0.59% to $0.6438.

For the Japanese Yen:

It’s a busy week on the economic calendar. Key stats include 4th quarter GDP numbers due out on Monday alongside February industrial production figures,

The focus will then shift to January trade data due out on Wednesday.

GDP numbers are forecasted to be quite dire, which may force the BoJ to show what it has on offer.

Trade data will also garner plenty of attention as the markets look to assess the impact of COVID-19 on regional growth.

At the end of the week, January inflation figures will likely have a muted impact, barring a spike…

Outside of the numbers, economic data from the U.S could continue to give the Dollar the upper hand.

A jump in COVID-19 related deaths and an increase in fatalities outside of China would likely drive demand for the Yen, however.

News from China on the weekend was market risk positive…

The Japanese Yen ended the week down by 0.03% to ¥109.78 against the U.S Dollar.

Out of China

It’s a particularly quiet week on the economic data front. There are no material stats due out of China to provide direction to the global financial markets.

The lack of stats leaves the COVID-19 updates, and impact analysis in focus. We are expecting the government to continue to drive liquidity near-term…

News of new cases in decline should provide early support.

The Chinese Yuan rose by 0.22% to CNY6.9869 against the U.S Dollar in the week.

Geo-Politics

Trade Wars: While the global financial markets remained gripped by the COMVID-19 spread, there was some chatter on the news wires of an imminent trade war between the U.S and the EU.

The U.S President will certainly want to return the narrative to making American great again, going into the campaign trail.

Any threat of tariffs on EU autos and expect tensions to rise.

UK Politics: The European Parliament laid down the gauntlet last week, calling on the UK to retain EU policies in a range of areas in exchange for that ambitious trade deal…

The EU’s opening position is scheduled to be agreed on 25th February, when EU ministers meet. This will be the starting point for the EU and will give the markets some idea of what lies ahead.

Iran and the Middle East: It’s been relatively quiet in the Middle East. In the U.S, however, the Senate has been busy debating a resolution to shackle the U.S President’s ability to go to war with Iran. Interestingly, a number of Republicans have supported the bill that is expected to pass. While Trump is expected to veto the bill, it’s the first chink in the Republican armor.

Corporate Earnings

It’s another busy week ahead on the corporate earnings calendar. Marquee names releasing earnings include:

From the U.S: Walmart Inc. (Tue) and Kraft Heinz (Thurs).

Out of Germany: Deutsche Boerse AG (Mon) Deutsche Telekom AG (Wed), and Allianz SE (Fri) are big releases in the week ahead.

From the UK: HSBC Holdings PLC (Mon), Anglo American PLC (Thurs), BAE Systems (Thurs), Barclays PLC (Thurs), Lloyds Banking Group PLC (Thurs), and Pearson PLC (Fri) also scheduled to release earnings results.

GBP/USD Forecast – Pound Punches Across 1.30 Level

GBP/USD is showing limited movement in the Friday session. The pair is currently trading at 1.3053, up 0.08% on the day.

Pound Climbs After Solid Housing Release

The British pound posted considerable gains on Thursday, as GBP/USD reacted positively to a strong housing release. The RICS House Price Balance indicated a rise in house prices for the first since July 2018. This propelled the pound above the key 1.30 level for the first time this week. 

Ahead – U.S. Retail Sales

With no British events on the schedule, the spotlight will be on releases out of the U.S. We’ll get a look at January retail sales at 13:30 GMT. The indicator is expected to remain unchanged at 0.3%. However, core retail sales, which posted a strong gain of 0.7% in December, is forecast to fall to 0.3%. Any unexpected readings could shake up the sleepy British pound.

Technical Analysis

There was a significant development on Wednesday, as GBP/USD broke above the key 1.3000 for the first time this week. On the downside, the 50-day EMA line is situated at 1.3009, followed by 1.3000, which has switched to a support role. Below, there is support at 1.2902. Lower, there is support at 1.2850, with the 200-day EMA is situated at 1.2845. On the upside, there is resistance at 1.3070, followed by resistance at 1.3170.

Pacific Currencies – Daily Summary

USD/CNY

USD/CNY has recorded small gains on Friday. Currently, the pair is trading at 6.9842, up 0.13% on the day.  Investors are waiting for the release of New Loans, which could be published as early as Saturday. The indicator is expected to improve sharply to 3100 billion yuan in January, compared to 1140 billion in the previous release.

AUD/USD

AUD/USD is trading at 0.6725, up 0.09% on the day.  There are no Australian events on Friday, but investors will be keeping an eye on U.S. retail sales, which will be released at 13:00 GMT. An unexpected reading could shake up the Australian dollar.

NZD/USD

NZD/USD is flat in Friday trade. Currently, the pair is trading at 0.6434, down 0.05% on the day. There are no New Zealand events on the calendar. NZD/USD is in positive territory this week. This is significant, as the pair has not had a winning week since late December. Similar to the Aussie, the New Zealand dollar could show stronger movement later in the day, if there is an unexpected reading from U.S. retail sales.

GBP/USD – Pound Looking to Test Key 1.30 Level

GBP/USD is showing limited movement in the Thursday session. The pair is currently trading at 1.2977, up 0.15% on the day.

Ahead – U.S. Consumer Inflation

With no major British events on the schedule, the spotlight will be on releases out of the U.S. We’ll get a look at key inflation numbers at 13:30 GMT, with the release of CPI and Core CPI. Consumer inflation and consumer spending have both been soft in recent months, although the U.S. economy remains in good shape. CPI dipped to 0.2% in December, down from 0.3%. Another weak gain of 0.2% is projected for January. Core CPI is expected to edge up from 0.1% to 0.2%.

Technical Analysis

We continue to see stubborn resistance at the key level of 1.300, with the 50-day EMA line following closely at 1.3004. Above, there are resistance lines at 1.3070 and 1.3170. On the downside, there is support at 1.2902. Lower, there is support at 1.2850. Below, The 200-day EMA is situated at 1.2844.

 

 

Pacific Currencies – Daily Summary

USD/CNY

USD/CNY has posted small gains. Currently, the pair is trading at 6.9799, up 0.13% on the day.  Investors are waiting for the release of New Loans, which is expected to be released on Friday or Saturday. The indicator is expected to improve sharply to 3100 billion yuan in January.

AUD/USD

AUD/USD has inched higher on Thursday. Currently, the pair is trading at 0.6721, up 0.13% on the day.  In economic news, MI Inflation Expectations fell sharply to 4.0% in January, down from 4.7% a month earlier.

NZD/USD

NZD/USD has steadied on Thursday after posting strong gains a day earlier. Currently, the pair is trading at 0.6450, up 0.07% on the day. There are no New Zealand events on the calendar. On Wednesday, the New Zealand central bank maintained the benchmark interest rate at 1.00%, and the bank’s rate statement was on the neutral side. However, the bank downplayed the downside risk posed by coronavirus to New Zealand’s economy, which gave a boost to the currency on Wednesday. NZD/USD is up close to 1 percent this week, and is on track for its highest weekly gain this year.

The Mid-Week Wrap Up – Coronavirus and Impact on the Major Currencies

It’s been a mixed week for the global financial markets. A jump in risk appetite, off the back of coronavirus numbers from China, drove demand for riskier assets.

The EUR suffered, however, as doom and gloom shrouded the region. It was not just sentiment towards the economy, but also a rise in geopolitical risk that did the damage…

Are there any major events on the economic calendar that could impact the major currencies?

The Dollar

After a quiet start to the week, it gets busier for the Greenback. Key stats include January inflation figures due out on Thursday and retail sales figures due out on Friday.

We can expect retail sales figures to have a material impact on the Dollar. During testimony to Congress, FED Chair Powell was clear that the FED would stand pat on monetary policy should economic indicators support the view that the U.S economy would likely be unscathed from the coronavirus outbreak.

On Friday, consumer sentiment figures will also need to support the positive outlook on spending.

January wage growth and nonfarm payrolls, low-interest rates and low mortgage rates should support spending near-term.

The EUR

For the EUR, the focus will be on 4th quarter GDP numbers due out of Germany on Friday. Other than a 5-month high composite PMI for January, economic data has been disappointing, to say the least.

We could see the EUR under more pressure at the end of the week should Germany’s economy contract in the 4th.

When considering the likely effects of the coronavirus on China’s economy and demand from overseas, it is going to need to be quite a stimulus package to offset weakness in the 1st quarter.

The Eurozone economy is unlikely to be as resilient as that of the U.S economy. We may even see Trump turn the screw on the EU and try to get a favorable trade agreement…

The Pound

For the Pound, we saw that the UK avoided a contraction in the 4th quarter, delivering support.

Coupled with decent employment figures and survey-based PMI numbers, the BoE looks vindicated in standing pat.

With no material stats due out through the rest of the week, however, the focus will likely return to Brexit and trade.

The good news is that the EU’s Van Der Leyen is looking for a remarkable trade agreement with Britain while mocking Johnson.

It may ultimately boil down to what strings are attached, though the British PM may prefer to go without an agreement than to be tied to the EU.

Interestingly, the EU could come under pressure should Britain make sound progress beyond the EU. The last thing that the EU needs is for Britain to be able to go it alone and not even need the EU as a partner, or at least a material one.

All in all, there are too many uncertainties near-term, however, to allow the Pound to break out from current levels.

Seems like it was a quiet beginning of the week. How have other countries performed during this period? Let’s discuss the commodity currencies.

It’s been quite a start to the week for the commodity currencies.

For the Aussie Dollar

Business and consumer sentiment figures on Tuesday and Wednesday provided much-needed support. For the RBA, rate cuts last year were to spur both business investment and consumer spending. Weak confidence across the board would certainly question whether more rate cuts would be needed.

Rain in regions devastated by bush fires led to reports that the fires are contained supporting the improved sentiment. This was also Aussie Dollar positive.

Over the remainder of the week, there are no stats to consider, leaving the Aussie in the hands of risk sentiment. News from China and beyond on the coronavirus will remain the key driver.

For the Kiwi Dollar

The RBNZ followed on from a more hawkish than anticipated RBA from last week. While holding rates unchanged, the RBNZ talked up the economic outlook for the 2nd half of the year. The RBNZ also viewed the impact of the coronavirus as short-term, aligned with the RBA.

This view may be on the assumption that Beijing will deliver a sizeable enough stimulus package to mute the effect of the virus on the economy.

On the data front, credit card retail sales disappointed ahead of the RBNZ decision on Wednesday but had a muted impact as the Kiwi surged.

Later in the week, the focus will shift to the Business PMI numbers. Following the RBNZ’s outlook on the economy, the markets make be somewhat forgiving to any weak numbers…

For the Loonie

It’s been a quiet week on the economic data front, with stats limited to housing sector figures. While upbeat, there was a limited impact, as sentiment towards the global economy and impact on crude oil prices provided direction.

With no material stats due out over the remainder of the week, the focus will remain on OPEC. OPEC slashed its demand forecasts. While this is traditionally negative for the Loonie, expectations are for OPEC and Russia to cut output to support prices.

Over the remainder of the week, the IEA monthly report and updates on the coronavirus will remain the key driver.

It was an uncertain beginning of the week for the commodity currencies. In the meanwhile, how have the Asian currencies done?

For the Japanese Yen

There has been little influence from the economic calendar, with stats limited to current account figures that failed to move the dial.

The lack of stats left the Yen in the hands of the news wires that dictated market risk sentiment in the week.

We see the Yen set for a surge should there be a marked pickup in new coronavirus infections and increases in the mortality rate.

Last week, we had heard that the Chinese government was looking to change the narrative and shift focus away from the numbers. The better than anticipated coronavirus cases in the early part of the week may have been just that…

Elsewhere, there was an increase in the number of cases, which suggested that the virus had yet to peak.

For the Chinese Yuan

We’ve seen the bounce back to sub-CNY7 against the greenback. This came off the back of a jump in inflation and assured support from Beijing to limit the effects of the virus on the economy.

Assuming that there are no major shocks, this strengthening should continue, particularly if Beijing delivers a sizeable stimulus package.

China has returned to work and a partial tariff rollback at the end of the week will need to be met with overseas demand to make it meaningful.

On the data front, new loan figures at the end of the week will garner attention. The markets are expecting a jump that would support Beijing’s assurances of support.

Ho Hum, Another Day Another Stock Market High Water Mark. US Markets Close At Record Highs As Coronavirus Fear Ebb.

Revised market open 

China Hubei Coronavirus update Feb 12th: 14,840 additional cases (under revised standards) v 1,638 prior; Daily death toll 242 v 94 prior

Revised standards have started to include cases diagnosed under new method – Notes it started involving cases diagnosed with the new process among confirmed cases from Thursday (Feb 13th) –

This certainly doesn’t sound good, and if I’m reading this headline correctly as on the first glean, there could be a severe case under-reporting going on.

Stay calm and buy the dip?

The Hubei Coronavirus update headline has initially hit like a ton of bricks given this is one of the market’s biggest fears.

So, traders have jumped into sell first, ask questions later mode. But is it time to stay calm and buy the dip?

The headline on the sharp jump in Covvid-19 cases looks gnarly on the surface. Still, it is essential to note that in Hubei, the epicenter of the outbreak, there has been a severe shortage of testing kits reported over the past few weeks. Many people who had symptoms (and even positive affirmation of things like pneumonia) were unable to be confirmed as virus carriers due to the testing kit shortage, and some were sent home to self-quarantine. The government made a push this weekend to clear the backlog of tests, and this big jump in confirmed cases could be a result of this.

And while there could be a knock-on effect where the Rest of China has been under-reporting. Still, I don’t think its a threat to the virus cluster beyond Hubei at this stage as other countries are certainly adhering to strict reporting protocol, and the cluster effect outside of China is receding.

On a more market-friendly note, the PBoC will continue to intervene perhaps now even more aggressively either with RRR or deeper interest rate cuts.

But Asia market rather than a global market and of course, demand sensitive to China commodities like Oil will be more re prone to the sell-off. Still, for ASEAN currency risk, its unlikely to weaken off to significantly as Yuan is doubtful to weaken through 7.0 USDCNH given the PBoC policy backstop.

Ho Hum, another day another stock market high water mark.US markets close at record highs as coronavirus fear ebb.

US equities post another day of gains WednesdayS&P500 up 0.5% heading into the close, US 10-year treasury yields rose 3bps to 1.63% and the 2s5s curve – which inverted earlier in the week – has turned positive again. Asia equity futures are trading in the green pre cash market open with the China proxies looking to open up well, while oil lifted 2.6%

Investors’ sentiment was boosted by the fact that China reported the lowest number of new virus cases since the end of January, while a senior medical adviser suggested the outbreak could be over by April.

Central bankers continue to remind that it is too early to gauge the economic impact from the virus fully; the RBNZ and Riksbank the latest to acknowledge downside risks. Still, the market looks increasingly willing to look through virus headlines. And with market flush with cash providing the juice in the market and given the negative data impact is so well flagged, in no small degree the growth downgrades have become somewhat irrelevant.

With risk positive momentum building and stocks and commodities both singing from the same song page, it appears the markets are finally letting go of the coronavirus fears.

Although “The Street” is downgrading growth forecasts, for now, the market has decided enough is enough. And the source of funds for the latest asset price move is the PBoC policy bazooka bolstering Asia sentiment the Fed’s repo remedies which have left banks awash with cash.

The coronavirus impact is probably just a near term demand shock that has been mitigated by central bank liquidity. Still, given that stocks are purely a momentum story at the moment, investors have little choice but to get on board or risk getting left at the station.

S&P 500 3400 level sure sounds like a beautiful Valentine’s day gift, especially if you own equities.

Oil markets

Oil is up as OPEC awaits an official response from Russia regarding proposed production cuts. This despite a hefty inventory build reported by the EIA.

Oil markets posted its most significant daily gain in six-week after reports of coronavirus cases in mainland China appear to be leveling off, according to the latest data from the Johns Hopkins Centre For Systems Science and Engineering.

So, despite the sizeable inventory swell, the EIA report fell through the cracks given the mounting evidence the coronavirus transmission is slowing. At the same time, oil demand sentiment is getting further boosted by stories that Foxconn hopes to resume 50% of its production in China by the end of the month and be at 80% capacity by the end of March.

But not wanting to sound like a killjoy, the markets have a sizeable glut to deal with, and the EIA report did little to alleviate those oversupplied concerns, bringing market attention full circle back to the elephant in the room, Russia agreeing to the JTC production compliance.

But Russia may find it easier to stomach temporary production cuts given relief is just around. And their market share won’t necessarily be compromised by US production, which would also be less willing to absorb the start-up cost to ramp up production immediately Which could be hugely bullish for oil markets

But clearly, the big story for prompt oil concerns is coronavirus fears are lifting as the virus transmission eases and which should send more shorts running for cover, While those shorts that remain at the risk-on party won’t be dancing to far from the exits as China demand could return with a vengeance.

Gold markets

Gold demand was tempered by the strong US dollar and rising risk appetite and while the underlying support remains there, but the upside looks limited over the near term.

Gold has been range-bound of late but supported given the headwinds it faces. Two factors continue to offer support One is that global monetary policy remains soft, and interest rates are low. The other is that geopolitical risks beyond the coronavirus are bullish. But with ETFs, and Comex net long positions high and if anything, a little bit stretched. When flagged against a firm USD, stock market gains, and the bounce higher in US bond yields, it suggests fast money traders who have been driving the bulk of action these days would probably be more inclined to trade gold from the short side limiting gains.

Chair Powell’s comments to the congress were bullish for gold longer-term but neutral in the immediate to short term. Without an immediate dovish Fed impulse, there is limited upside for gold currently, but the US election cycle risk should support gold. The race now moves to Nevada with a caucus on 22 February with an essential debate before that on 19 February, but it is still unclear if Michael Bloomberg, who would pose a real threat to Trump, will meet the polling criteria to make it to the debate stage.

Asia FX

The Yuan 

The PBoC continues to stabilize the markets has limited RMB weakness via fixing USD/CNY lower than the market’s expectation while introducing various countercyclical measures to encourage portfolio inflows. As the market gradually pivots out of the virus haze and begins to see some light at the end of the tunnel and coupled with the mainland macro measures designed to ramp up production, Asia FX traders could start to front-run the China rebound trade more aggressively.

According to Deutsche Bank MTD, net equity inflows are at ~$2bn, slightly more than in January and well above the 2019 average, while bond flows in January showed ~ $2.1bn of inflows.

So, if the PBoC continues to limit RMB weakness, and with Bond market rallying, portfolio inflows should continue to remain active, especially given the ongoing bond index inclusion, such as to the GBI-EM, which will include China starting from the 28 February. Hence the healthy Hedge Fund appetite for all things RMB.

The Ringgit

While the Ringgit weakened on the worse than expected GDP print, which then brought forward rate cut prediction. Improving regional risk sentiment as coronavirus cases in mainland China appears to be leveling off, and rising oil prices should provide some immediate support for the Ringgit.

The Tourism basket

While the Thai Bhat has recovered from the peak coronavirus fear levels, the Singapore dollar continues to struggle for traction. But unlike regional currencies like the MYR that should benefit from the local rebound trade on the back of China pent up production demand coming back online. There has been a sizable chunk of tourism revenue in Thailand that has been lost, and you can’t replace that. So, any further gains in the THB might not be so immediately forthcoming, given that it’s impossible to make up that lost revenue. Still, the Thai market is in a much better place than it was only 48 hours ago.

Secondary virus cluster fears continue to weigh on Singapore, so traders remain very defensive knowing the MAS could eventually cut interest rates to support the flagging Singapore economy.

G-10 Currencies

The Japanese Yen

The main G10 flow over the past 24 hours has been USDJPY, with the pair back above the 110 handles as risk continues to trade well supported. And with risk sentiment well supported as virus fears turn benign, it seems pointless to fight it. While +110 has proven to tricky level to go long recently, gains could be a bit of a grind today unless the stock market momentum takes a run at the S&P 500 3400 levels.

The Euro

In EURUSD, the constant supply over the past 24 hours taking its toll. The pair is trading below Tuesday’s lows, but still holding just below the October lows, at least for now. And now with the Euro as the go-to currency trade funder via EM FX kicking in, offers will likely remain thick over the near term. The markets at a critical level, so the next move could be key.

Canadian Dollar 

More positive signs for the Loonie is that more topside strikes north of 1.3500 is getting offered through the brokers as the spot price weakens, given the recovery in oil prices.

 

USD/CNY Price Forecast – Lowest Volatility Day for the USD/CNY in Two Weeks

 

The USD/CNY saw low volatility today with the narrowest trading range since activity levels picked up seven days ago, following Chinese New Year holiday. Support for the day was seen at 6.9590, right at the top of the 21-day exponential moving average line (ema). Currently, the USD/CNY is at 6.970, up 0.0058 or 0.08% for the day.

USD/CNY Daily Chart

China Impacted by Virus

Although the number of people believed to be infected coronavirus in China has skyrocketed

to more than 44,000 confirmed cases, China reported the lowest number of new cases since January today. There have been over 1,100 deaths reported from the virus.

On Thursday this week, China will release Foreign Direct Investment (year to date) numbers. This is the first time the data will be updated since the coronavirus outbreak began and may help investors get a better handle on growth expectations for the Chinese economy.

Then, on Friday, China and the U.S. are scheduled to lower tariffs on billions of dollars of imports, as part of the first phase of the trade deal signed last month.

Key Price Levels

Key price levels to watch in the near-term are support at 6.9559, 5-day low, and resistance at 7.0024. A move through the bottom will trigger a continuation of a measured move correction off the 7.0248 swing high.

The USD/CNY will then head towards the 50% retracement zone around 6.9308. Also, at that point, a measured move will have completed where the second leg down from the 7.0248 high will match the price decline of the first leg down.

The first leg down starts at 7.0248. A measured move is a classic pattern in technical analysis that appears frequently in financial markets.

If price continues below the 50% retracement, then support might next be seen around the 61.8% Fibonacci retracement at 6.9096.

USD/CNY Daily Chart

Dominant Bull Trend

It’s important to keep in mind the larger dominant price structure for the USD/CNY pair. A long-term bull trend remains and once the currently shallow correction completes, the dominant pattern should again kick in.

As of February 3, the USD/CNY has broken out of a descending trend channel as it went above the top channel trend line and closed above it on a daily basis. Yet, to date there has been no follow-through. At this point a failure of the breakout could occur.

Signs of strength will be needed to indicate that upward momentum from the breakout may be returning to help propel price higher. The first sign of strength is on a rally above 7.0024 and then above 7.0248, with a move beyond the higher price needed to trigger a continuation of the channel breakout.

 

 

 

GBP/USD – Pound Steady on Mixed GDP Releases, New Zealand Dollar Jumps

GBP/USD has posted slight gains in the Wednesday session. The pair is currently trading at 1.2976, up 0.19% on the day.

Pound Shrugs Off Lukewarm GDP Data

There were some highly anticipated releases on Tuesday, but the lukewarm readings left investors shrugging their shoulders, as the pound showed little reaction. Preliminary GDP came in at a flat zero in the fourth quarter, matching the estimate. There was better news from the monthly GDP report, which showed a gain of 0.3% in December, edging above the estimate of 0.2%. This marked the indicator’s first gain since July.

On the manufacturing front, Manufacturing Production improved in December, with a gain of 0.3%. In November, the indicator declined by 1.7%. Still, this reading fell short of the estimate of 0.5%.

Technical Analysis

There is resistance at the key level of 1.300, with the 50-day EMA line following closely at 1.3010. On the downside, there is support at 1.2902. Lower, there is support at 1.2850. Below, The 200-day EMA is situated at 1.2828.

 

 

Pacific Currencies – Daily Summary

USD/CNY

USD/CNY has steadied after losing ground for the past two days. Currently, the pair is trading at 6.9969, up 0.08% on the day.  Investors are waiting for the release of New Loans sometime during the week. The indicator is expected to improve sharply to 3100 billion yuan in January.

AUD/USD

AUD/USD has moved higher for a third straight day. Currently, the pair is trading at 0.6741, up 0.41% on the day.  In economic news, Westpac Consumer Sentiment bounced back with a gain of 2.3% in February, after two straight declines. This strong reading followed the NAB Business Confidence remained in negative territory, as it ticked higher to -1, up from -2 points. This points to pessimism on the part of the business sector.

NZD/USD

NZD/USD has posted strong gains on Wednesday. Currently, the pair is trading at 0.6469, up 1.04% on the day. The New Zealand central bank maintained the benchmark interest rate at 1.00%, but the bank’s rate statement was more hawkish than expected, which boosted the New Zealand dollar.

USD/CNY Price Forecast – China Outlook Stabilizes as Yuan Rises for Second Day

 

Chinese yuan strengthens slightly on Tuesday following the reopening of factories on Monday and workers returning to work. The threat of an accelerated spread of the coronavirus remains real however, and the impact on the Chinese economy is still very uncertain.

USD/CNY Daily Chart

At the same time the perception is that Chinese authorities have had a serious response to the outbreak. Although economic growth will slow to some degree it’s still too early to assess an impact, especially given that the threat remains high.

Today’s Performance

The USD/CNY currency pair declined today by 0.017 or -0.24% to 6.9649, currently. This increases the chance for a deeper pullback in the pair than what we’ve seen over the past week.

So far, the USD/CNY has retraced a little more than a third of its prior advance, finding support at 6.9559 (now a swing low) last Thursday and bouncing. That bounce on Friday didn’t last long though as today’s closing price is going to be the lowest daily close in six-days. Nonetheless, price remains above the prior swing low and above the purple 21-day exponential moving average (ema) support line.

USD/CNY Daily Chart

Price Levels for Deeper Pullback

If the USD/CNY falls further to below the 6.9559 swing low, then it is probably heading to at least the 50% retracement (green line) around 6.9308. That price level can be combined with the 6.9321 to create a support zone, as that’s where a measured move will have completed.

Measured Move – Downside Targets

A measured move is where the second leg down in a retracement matches the depreciation of the first leg down. In this case, the first leg down starts at the 7.0248 swing high, and the second leg down begins off the 7.0024 high.

In the case where price falls to below the 50% retracement zone, next watch for the 61.8% Fibonacci retracement level at 6.9096 (red line) to be reached.

Long-term Bull Trend Dominates

Given the longer term bullish price structure for the USD/CNY pair of higher swing highs and higher swing lows, the outlook remains bullish, once the current retracement is complete. However, if the pair falls to below the recent 6.8409 swing low, the bullish case is suspect and would have to be reassessed.

Signs of strength return if the pair can get above 7.0024, and then above 7.0248, with the higher level being more significant.

GBP/USD – British Pound in Holding Pattern Ahead of GDP Releases

GBP/USD is steady in the Tuesday session. The pair is currently trading at 1.2903, down 0.10% on the day.

Will GDP Shake Up Sleepy Pound?

Investors are keeping an eye on two key releases at 9:30 GMT – Preliminary GDP for Q4 and Manufacturing Production. Preliminary GDP rose 0.3% in Q3, shy of the forecast of 0.4%. Still, this was higher than the Q2 release of -0.2%. The estimate for the fourth quarter stands at a flat 0.0%. The monthly GDP report came in at -0.3% in November, short of the forecast of 0.0%. This indicator has not shown a gain since July, but the forecast for December is 0.2%.

The British manufacturing sector has struggled, and Manufacturing Production has managed only one gain in the past four months. In November, manufacturing production fell by 1.7%, its sharpest decline since April 2019. Analysts expect a rebound to 0.5% in December.

Technical Analysis

GBP/USD continues to drift this week. We find resistance at the key level of 1.300. The 50-EMA line follows closely at 1.3009. On the downside, there is strong pressure on support at 1.2902 and this line could break during the day. Lower, there is support at 1.2850. Below, The 200-day EMA is situated at 1.2830.

GBP/USD 11/02/20 Daily Chart

Pacific Currencies – Daily Summary

USD/CNY

USD/CNY has lost ground for a second straight day. Currently, the pair is trading at 6.9749, down 0.10% on the day. There are no Chinese events on the calendar. Investors are looking ahead to Wednesday, with the release of New Loans, which is expected to improve sharply to 3100 billion yuan in January.

AUD/USD

AUD/USD has posted slight gains for a second successive day. Currently, the pair is trading at 0.6708, up 0.32% on the day.  In economic news, Australian NAB Business Confidence remained in negative territory, as it ticked higher to -1, up from -2 points. This points to pessimism on the part of the business sector.

NZD/USD

NZD/USD is trading sideways on Tuesday. Currently, the pair is trading at 0.6390, up 0.07% on the day. There are no New Zealand releases on the schedule. On Wednesday, the New Zealand central bank will release its interest rate decision. The bank is expected to maintain rates at an even 1.00%.

 A Camel Is A Horse Designed By Committee.

US equities were stronger Monday, S&P500 up 0.5% heading towards the close. Fixed income was less upbeat, US ten-year treasury yields fell 3bps to 1.55%, and the 2s5s curve has inverted again. With no new US data to guide sentiment, the market was left balancing last week’s good -weather friend that boosted US jobs in January and capped-off a surprisingly good month of US data. Against the plethora of economic as well as virus transmission unknowns around the nCoV.

On the latter, the number of cases on a cruise ship docked in Japan has doubled, while the number of globally confirmed cases has increased above 40,000. The WHO Director-General noted some “concerning instances” of the virus spreading “from people with no travel history to China.” Equities outside of the US were mixed. Oil fell 1.5%.

For now, US growth trackers are holding up well.

However, questions around the timing and to the extent the China nCoV slowdown is unknown, and it will likely remain so for a while. And while how the economic knock-on contagion effect from nCoV hits, the US might be significant. Thus far, it has not been much of a factor for the US data.

But to that end, this weeks US data deluge, including industrial production, retail sales, and UMich surveys. However, it’s the forward-looking outlook for industrial production (and supply chain disruptions), that will drive the narrative.

Since there is relatively little known about nCoV and its effect on the global economy, it’s difficult to speculate about

. And while the implications are going to be hugely detrimental for the Chinese economy. But how negative remains the million-dollar question. It is most likely to be short-lived and transitory. Still, there is always a chance it could have a more prolonged, demand damaging effect.

One of the enormous dilemmas for investors is whether the impact of the coronavirus will be enough to derail the global economy and usher in another round of Fed + easing. Until concerns around the virus surfaced, global growth was improving, and Asia was showing ongoing signs of acceleration. If the fears subside, the debate will quickly turn to how fast the recovery will come.

But in the meantime, investors are left with the unenviable task of weeding through increased yet conflicting web traffic around nCoV with the headline generators working overtime. Indeed, a camel is a horse designed by committee.

US exceptionalism is coming to the fore, and it’s not hard to see why. The US economy, especially the new 2020 data, was – quite simply – outstanding. From the job report to the manufacturing data, it is difficult to point to something and say it was a harbinger of negativity. But more telling for US stock markets is that of the 317 companies in the S&P 500 have reported so far, 76% of them beat estimates. By this measure, we are witnessing the second most positively active Q4 season since 2010. Indeed, US exceptionalism is in part driving capital and supporting the US dollar as the DXY is back touching August -September level.

At the moment, the data is pointing to the US entering the nCoV slowdown with quite a bit of strength, which is a huge plus. And while nCoV is undoubtedly a negative for the overall growth in the economy. Still, markets seem to think it is not going to be the “worst-case” with little demand destruction outside of commodity markets. Sure, it could be wishful thinking, but that is what markets appear to believe. A shock to growth, not smashing it to smithereens.

Oil markets

The markets have gone well beyond weakened risk sentiment as its clear as a bell, that demand is not sufficiently responsive enough to lower prices. And now oil-price weakness in an oversupplied market has the December Red’s bellwether Brent spreads bearishly moving into contango.

OPEC ministers seem to have abandoned the push for an emergency meeting to finalize a supply response to the coronavirus likely stymied by Russia, indicating it needed more time to assess the situation – after the technical panel had recommended a further quota cut of 600kbd.

Adding to oversupply concerns is the UN-led talks aimed at ending the ongoing Libyan conflict. And Libyan production could ramp up quickly, which has fallen from close to 1.2mb/d to a 9-year low of 180kb/d. as a result of port blockades during a period of escalating tensions between rival Libyan factions. The possible return of Libyan production during this exceptionally supply sensitive period could be the proverbial straw that broke the camels back for the lack of a better analogy.

And while OPEC and friends dither, a bearish awareness continued to unfold concerning the absolute demand damage that the shut-down of the swathes of the Chinese economy is going to do to oil demand is now seeing prices sinking again after the initial fall and then rebound.

Gold markets

Gold initially moved higher despite a strong USD, and prices were further bolstered on the back of political developments in Europe Gold rallied on modest-quality asset buying as a ‘risk-off’ mood persisted in European and Asian markets. But gold prices veered lower in US markets as S&P 500 rallied to record highs supported by strong corporate earnings while US growth trackers are holding up well.

The announcement that Annegret KrampKarrenbauer, leader of the ruling center-right Christian Democratic Union, intends to resign, opening up the race to succeed Angela Merkel as Chancellor of Germany, triggered gold demand across Germany yesterday.

But bond yields continue to edge lower and are reflecting investors fear about the rapid spread of the virus. Ultimately long Bond and Gold positions are similar to “stimulus trades/hedges. “The PBoC has already turned on the policy taps while there’s the assumption that if the economic contagion effects from the virus hit the US economy, Powell will have the markets back.

The nCoV adds to a growing list of economic growth concerns that could see the Fed shift into dovish gears later in 2020. Gold traders always take their cues from US bond markets, so with another dip in US yields, it’s perceived supportive for gold. But ultimately, for gold, its how the Fed policy unfolds in 2020.

Currency markets 

The US dollar 

US exceptionalism is in part driving capital and supporting the US dollar as the DXY is back touching August -September level. Just as was the case throughout 2019, when the US dollar weakens currency traders look at themselves and ask why they are selling the dollar when US equities continue to make record highs.

The Yuan

The RMB markets have been remarkably orderly thanks to the PBoC, who continue to lay stimulus on thick and heavy. And despite the 6 billion + in equity outflows, the Yuan remains supported by policy guidance.

The Malaysia Ringgit

The market remains extremely concerned about an escalation of cases outside of China, which could continue to hold back risk until there’s a definitive sign the coronavirus transmission has slowed. And uncertainty about renewed/secondary outbreaks becomes obsolete.

China starts to return to work after the extended Lunar New Year holiday. How quickly production resumes signals how much global supply chains are likely to be damaged, and this will be a key metric.

But there appears to be considerable reluctance from foreigners o buy into the Ringgit and KLCI stocks at this stage. So, until it becomes clear what the economic fallout from disruption to supply chains and Chinese demand. sentiment could remain on the offs

The Singapore Dollar

Most of the market focus has fallen on the Singapore dollar and why the MAS verbally intervened on the band as opposed to lowering rates. MAS likely believe the virus effects will be transitory, preferring to keep policy powder dry in case there is significant deterioration to the economy beyond tourism.

The Australian Dollar

Concerns about the coronavirus outbreak kept vols elevated as there is plenty of fear around Australia’s export outlook of late. And as far as that goes, nothing comes close to iron ore. It’s easily Australia’s biggest export, accounting for 4% of GDP. And 80% of it goes to China. So, until the full extent of China’s economic damage is known, the virus that’s the most significant present and future risk to Australian trade and the AUD.

And while traders don’t want to get caught on the other end of PBoC infrastructure deluge, for now, the path of least resistance based on current trade metrics looks south for the Aussie.

The Euro 

Besides US exceptionalism, the Euro is trading weaker on German political uncertainty after Annegret KrampKarrenbauer, leader of the ruling center-right Christian Democratic Union, intends to resign, opening up the race to succeed Angela Merkel as Chancellor of Germany.

 

USD/CNY Price Forecast – Yuan Strengthens Following Higher than Expected China Inflation

The Chinese yuan moved higher Monday following the release of January inflation data that was stronger than expected. Consumer inflation grew at a 5.4% rate year-over-year versus an anticipated 4.9% advance. That’s higher than December’s 4.5% increase. Producer prices were up 0.1% year-over-year, the first time they’ve been up since May 2019.

Later in the week, on Friday, China and the U.S. are set to lower tariffs on billions of dollars of imports as part of the first phase of the trade deal signed last month.

USD/CNY Daily Chart

USD/CNY Pair Pulls Back Within Developing Uptrend

The USD/CNY currency pair is currently trading at 6.9820, down $0.26% from Friday’s close. Even with Monday’s down day, the pair remains poised to continue higher following a mild pullback to the 38.2% Fibonacci retracement level last week. Note that 6.9820 is right at support of the downtrend line at the top of a descending parallel trend channel.

Bullish Channel Breakout

A breakout of the channel occurred last week on a daily close above the trend line. Although not assured, the breakout increases the likelihood that the USD/CNY will eventually exceed the trend high and top of the channel at 7.1842. The next bullish trigger is on a decisive move above 7.0248.

A bottom for the USD/CNY pair was hit on January 20 at 6.8409 as Chinese authorities reported over 200 infections from the coronavirus and the third death. The USD/CNY previously had been trending down (yuan moving higher) as we approached the signing of a trade deal between the U.S. and China.

Heightened Uncertainty Due to Coronavirus

It is not yet clear how big an impact the coronavirus epidemic will have on the Chinese economy. Authorities reported 97 new deaths on Monday and the worst may be yet to come. Many factories and offices remain closed after a mandatory holiday, while numerous global and domestic supply chains have been disrupted.

Upcoming economic reports will be watched closely for signs of how the epidemic is impacting China’s economy. On Tuesday, China reports year-over-year foreign direct investment, and the following week the Housing Price Index is report year-over-year for the month of January.

GBP/USD – Pound Coming Off Miserable Week, Falls Below 1.29

GBP/USD is trading quietly in the Monday session. The pair is currently trading at 1.2881, down 0.07% on the day.

Ahead – GDP, Manufacturing Production

After a dismal week, in which the pound fell 2.2%, all eyes are on GDP reports and a key manufacturing release. Strong data could push the pound back towards the 1.30 level.

Preliminary GDP rose 0.3% in Q3, shy of the forecast of 0.4%. Still, this was higher than the Q2 release of -0.2%. The estimate for the fourth quarter stands at a flat 0.0%. The monthly GDP report came in at -0.3% in November, short of the forecast of 0.0%. This indicator has not shown a gain since July, but the forecast for December is 0.2%.

The British manufacturing sector has struggled, and Manufacturing Production has managed only one gain in the past four months. In November, manufacturing production fell by 1.7%, its sharpest decline since April 2019. Analysts expect a rebound to 0.5% in December.

Technical Analysis

GBP/USD remains under pressure. There is weak resistance at 1.2902, followed by resistance at the key level of 1.300. The 50-EMA line follows closely at 1.3012. On the downside, there is pressure on support at 1.2850. Below, The 200-day EMA is situated at 1.2828.

 

Pacific Currencies – Daily Summary

USD/CNY

After showing sharp swings last week, USD/CNY has started the week with losses. Currently, the pair is trading at 6.9816, down 0.27% on the day. There was positive economic news to start the day, as Chinese CPI gained 5.4% in January on an annualized basis, up from 4.5% in December. The forecast stood at 4.9%. The strong numbers were a result of increased consumer demand around the Lunar New Year holiday.

AUD/USD

AUD/USD has started the week with gains. Currently, the pair is trading at 0.6700, up 0.40% on the day. On Friday, the RBA lowered its growth forecasts in its quarterly monetary policy statement. The bank slashed the June 2020 forecast from 2.6% to 1.9%, citing the recent drought, bushfires and the coronavirus as reasons for the lower forecast. The December 2020 forecast was trimmed from 2.8% to 2.7%. There are no Australian events on the calendar. On Tuesday, Australia releases NAB Business Confidence and Westpac Consumer Sentiment.

NZD/USD

It’s been down, down, down for the struggling NZD/USD. The pair slipped close to 1 percent last week, as the coronavirus continues to weigh heavily on risk appetite. Currently, the pair is trading at 0.6407, up 0.07% on the day. There are no New Zealand releases on the schedule.