Bonds rallied and stock markets looked somewhat better as unscheduled statements from both the BoJ and the Fed sparked speculation of coordinated global central bank cuts.
Fed Chairman Powell was already forced to issue a statement on Friday saying the bank will take appropriate action to support the economy. The BoJ followed over the weekend, saying that it will “strive to provide ample liquidity and ensure stability in financial markets through appropriate market operations and asset purchases”. The BoJ already offered to buy 500 billion Yen of government bonds via repurchase agreements to provide liquidity, and these comments and actions helped local stock markets to recover earlier losses.
A rate cut from the RBA in Australia tomorrow is now seen as pretty much a done deal and speculation that there will be a coordinated move from global central banks this week has helped bond as well as stock markets.
Stock markets had initially been under pressure this morning also due to the weak Chinese manufacturing PMI readings which highlighted the impact of virus disruptions. China’s February manufacturing PMI plunged a surprising 14.3 points to 35.7, a record low. This is one of the first pieces of data reflecting the impact of COVID-19, and obviously it’s not good. This new nadir beats the prior figure of 38.8 from November 2008. It’s also the steepest drop on the books. Bloomberg cited Nomura’s chief China economist Lu Ting who noted the data might even have been worse. A rise in delivery times helped boost the index, but the longer delivery time was a function of the COVID-related shutdowns and transportation dislocations, and not due to a jump in demand. Meanwhile, the non-manufacturing index tumbled 24.5 points to 29.6 in February from 54.1 in January. This is also the lowest on record.
However the potential of coordinated global Central Bank action has helped both Bond and Equity markets to overcome the PMI weakness. JPN225 gained 1%, while the Hang Seng lifted 0.78% and CSI 300 and Shanghai Comp rallied 3.7% and 3.4%. The GER30 and UK100 futures are up 1.4% and 1.8% respectively, while US futures are posting gains of 0.4-0.6%. In the FX markets EURUSD is trading at 1.1043 and the Pound is at 1.625 against the EUR and 1.2837 against the Dollar. The USDJPY lifted to 108.23, after the BoJ statement, while USOIL futures traded at $46.10.
Elsewhere, ECB officials have argued that it is too early to make a decision on an appropriate reaction to virus developments, but clearly with markets looking increasingly fragile central bankers will have to issue at least some assurance. German Economy Minister Altmaier meanwhile repeated that the government will address the implication of virus disruptions, saying he will discuss stimulus measures with the finance minister. Europe also has to fear another refugee crisis now after Turkey “opened” its borders in what looks like an attempt to force Nato’s hand over Turkey’s action in Syria. Against that background the official start of EU trade talks with the UK almost seems to fade into the background, but a Bloomberg source story highlighted again that the risk of a breakdown is pretty high, which leaves the risk that the transition period will ends in December without a deal in place firmly on the table.
Today’s data calendar focuses mainly on final manufacturing PMI readings for February, which are widely expected to confirm preliminary numbers. G7 finance ministers will hold a teleconference this week to coordinate their response to the virus outbreak.
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