After huge stimulus the Coronavirus saga continues

With huge stimuluses announced on the monetary and fiscal front world-wide and the USD leaving behind probably one of its best weeks for a number of years, we take a look into what next week has in store for the markets. As was expected the past few days rocked the markets and we could expect the coming week to maintain a high degree of volatility, so be in your guard. Main financial releases for next week could include the preliminary PMIs for March, UK’s inflation rates for February, the US durable goods orders growth rates for February and many others.

USD – The king of the jungle

During the previous week, we saw the US Federal Reserve enacting a 100 basis point rate cut as a drastic measure to protect the US economy. The news was supposed to be negative for the US dollar as rate cuts usually are, yet the greenback moved higher from Monday’s openings until Thursday. At the same time, the US government pledged a huge stimulus package at around 1.2 trillion USD, including the possibility of “helicopter money” for US citizens. The stimulus package aims to support households and businesses, and to relax worries over the negative effects of the coronavirus pandemic. However, the most characteristic part of the past few days was the rally of the USD, which plunged a number of its counterparts and caused a number of Central banks threatening to intervene, in order to support their currencies. Today the USD seems to have stabilised, yet nothing is over until the markets say enough is enough. As for financial releases, we start on Tuesday with the US Markit preliminary PMIs for March and the number of new home sales for February. On Wednesday, we get the durable goods orders growth rates for February, as well as the final GDP growth rate for Q4. It should be noted that especially the relevance of the GDP rate for Q4 2019 weakens, after the coronavirus outbreak and the threat of a possible recession growing. On Thursday we get the initial jobless claims figure, after the shocking release yesterday of 281k. Last but not least on Friday, we get the Fed’s favourite inflation measure the Core PCE Price index and the US consumption rate both for February, as well as the final reading of the University of Michigan Consumer sentiment for March.

GBP – Cable stabilises after drop to 1985 levels

The pound stabilised against the USD and the EUR yesterday after BoE proceeded with a surprise rate cut of 15 basis points. Also, the bank announced a substantial QE program of 200 billion pounds, in an effort to guard the UK economy. Especially the GBP had marked its lowest levels since 1985 practically collapsing. Despite some correction higher today, cable seems to remain quite fragile. Analysts noted that liquidity is better than in the past days which could be providing some comfort. On the political front UK’s PM expressed optimism that the UK could ‘turn the tide’ of the virus outbreak within 12 weeks. It should be noted that the UK government seems to be changing course in the past few days, from its prior “herd immunity” approach. New measures include among others ordering schools to be closed, encouraging working from home and limiting large gatherings. At the same time, UK’s Chancellor (finance minister) announced a huge fiscal stimulus package to support the economy. The government seems to be abstaining currently, from the idea of putting London under at least partial lockdown, yet such a scenario cannot be excluded. As for financial releases, pound traders are to have a busy weak ahead as on Tuesday we get the preliminary PMIs for March, on Wednesday UK’s inflation rates for February, on Thursday the retail sales growth rates also for February and on Friday the nationawide house prices for March.

EUR – In the grip of the Coronavirus

We will do everything necessary within our mandate to help the euro area through this crisis, because the ECB is at the service of the European people”, Chrisitne Lagarde. The statement from ECB’s president came after ECB announced a massive expansion of its assets purchases of 750 billion Euros. The moves announced by the ECB are characteristic of the determination in the Eurozone to get out of the coronavirus with as little damage as possible. At the same time, the pandemic has a firm grip over Europe, paralysing the economy. It is characteristic that Italy’s death count has surpassed China’s, even with less confirmed cases and its population being just a fraction of the Chinese population. The country’s health system is clearly over its limits. Countries with increased worries could include France and Spain which suffer a high number of cases and a relatively high death toll. On the other hand, Germany seems to be still holding on, as despite the high number of confirmed cases, the death toll remains at surprisingly low levels. As for financial releases next week, we expect EUR traders to focus on the release of the area’s preliminary PMI readings for March. We expect Germany’s manufacturing PMI for March to be of special interest and at second base France’s services PMI and Eurozone’s composite PMI. Also Eurozone’s preliminary consumer confidence for March will be of interest as it will gauge consumer confidence in the midst of the crisis.

JPY – Safehaven flows to continue to affect JPY

JPY is expected to have a rather light calendar in the following week. For the JPY the surprise came early on Monday as BoJ remained on hold at -0.10%. However, we must note that the bank announced increased purchases of exchange traded funds and other assets to fight the widening economic fallout from the coronavirus. At the same time, the bank stated that “The BOJ will take additional monetary easing steps as needed without hesitation with a close eye on the impact from the coronavirus epidemic for the time being”. We expect JPY to remain heavily driven by safe haven flows in the coming week and especially in competition with the USD which also shined as a safe haven in the past two weeks. As for financial releases we tend to note on Monday the preliminary Jibun manufacturing PMI for March and on Friday Tokyo’s CPI rates also for March.

AUD – Reversing the course after heading south

Further to the south of China, the Aussie seems to recover slightly after reaching a multiyear low against the USD yesterday. RBA pumped substantial amounts of cash into the banking system of Australia by injecting a record 12.7 billion AUD. The action aims to ease the liquidity constraints in a stressed bond market. It should be noted that the bank proceeded with an emergency cut of its interest rate by 25 basis points lowering them to 0.25%, from prior 0.50% in order to support the economy. The rates reached historic lows, while the market seems to expect further cuts to come. The government is expected to announce a second package of fiscal stimulus, yet analysts tend to note that all of this spending is to be funded by debt. It was characteristic that on Thursday’s Asian session, even the solid employment data with the unemployment rate dropping and the employment change figure outperforming market expectations, failed to provide any comfort for the battered Aussie. As for financial releases once again we expect Aussie traders to have a rather light calendar, and we single out the release of the preliminary PMIs for March on Tuesday.

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