Protected: An Update :US Dollar Index ,USDJPY ,AUDUSD ,USDINR ,EURO ,YEN ,GOLD ,SILVER ,PALLADIUM ,WTI ,BRENT ,SPX 500 -Anirudh Sethi

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The dollar rallied strongly from March 9 through March 20 or the start of last week on March 23.  It has subsequently sold off and done so in dramatic fashion.  It is not clear the trigger of the stunning reversal.  Some observers attribute it to the Fed’s currency swap lines, which were offered daily (seven-day operations) to a handful of large central banks.
Others link it to the better risk appetites reflected in meaningful bounces in equity markets, but nothing as striking as the 17% rally in the Nikkei.  Even with a 915-point tumble in the Dow and a 3.3% drop in the S&P 500 before the weekend, both ended with double-digit gains on the week.  Gold’s 8.6% rally will not sit well with those who view it as a safe haven.  The 30- and 60-day rolling correlations on the percent change of gold and the S&P 500 are positive for the first time since the middle of last year and October 2018, respectively.
The technical indicators that we monitor, the MACD and Slow Stochastic, have turned down for the dollar against all the major currencies.  The poor technical condition suggests the dollar’s weakness is more than a function of month- and quarter- and fiscal year-end flows, but was technically over-extended.  We will use Fibonacci retracement and moving averages to identify potential price targets and relative strength.
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European bond yields continue to rise over the past week

10-year German bond yields rise to its highest levels in a month

GDBR10Y

Meanwhile, 10-year French and Spanish bond yields have both climbed to their highest levels since May 2019 to start the day. This comes as we also see Treasury yields rebound higher, with 10-year yields up by 10 bps to 0.82% currently.
It is tough to try and make sense with what is happening in the market because things change so quickly but I would argue that the selloff in European bonds isn’t exactly a good sign for the euro currency in general.
I would say the rise in Treasury yields represents a bit of a disconnect because the move higher there reflects more closely the slightly better risk mood today – which is also helping USD/JPY to stay underpinned, alongside gains in the dollar today that is.

Federal Reserve acts on a Sunday evening to slash rates to near zero

Federal Open Market Committee

  • cut interest rates for the second time in less than two weeks
  • emergency move
  • “The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range
  • The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals”
Headlines via Reuters:
  • fed cuts interest rates to near zero in response to coronavirus crisis, risks to economic outlook
  • says expects target interest rate will remain in range of 0 and 0.25% until economy has “weathered recent events” and is on track to meet inflation and employment goals
  • says crisis has “harmed communities and disrupted economic activity” in u.s. and other countries, will weigh on activity in the near term
  • says will use “full range of tools” to support economy, will expand holdings of treasury securities by $500 bln and mortgage backed securities by $200 bln in coming months
  • vote on policy action was 9 to 1, with Cleveland fed president Loretta Mester preferring a smaller interest rate cut
  • Fed announces coordinated action with bank of Canada, bank of England, bank of Japan, European central bank and Wwiss national bank
  • Fed says six global central banks have agreed to lower pricing on u.s. dollar liquidity swap arrangements by 25 bps
  • says changes to central bank swap lines will take effect week of march 16
  • Fed and other global central banks will begin offering u.s. dollar liquidity in each jurisdiction with 84-day maturity
  • Fed says it will lower the primary credit rate by 150 basis points to 0.25 percent, effective march 16
  • Fed says it supports firms that choose to use their capital and liquidity buffers to lend and undertake other supportive actions in a safe and sound manner
  • says that depository institutions may borrow from the discount window for periods as long as 90 days, prepayable and renewable by the borrower on a daily basis
  • says reducing reserve requirement ratios to zero percent effective on march 26
  • says encourages depository institutions to utilize intraday credit extended by reserve banks, on both a collateralized and uncollateralized basis

China Securities Journal: PBOC may cut OMO rates this month

People’s Bank of China open market operations are one tool used to manage liquidity

  • rates may be cut this month reports the CSJ
China Securities Journal is a national securities newspaper – part of official Xinhua News Agency.

Global central bank co-ordinated interest rate cut coming on Wednesday 4 March

A coordinated global interest rate cut by the top central banks will happen this Wednesday, March 4.

  • So says economist for the U.S. bank lobby Bill Nelson, chief economist at the Bank Policy Institute
Nelson, formerly at the Federal Reserve (worked on the Fed’s responses to the 2007-2008 financial crisis):
  • It will happen before the U.S. stock market opens, either 7 a.m. or 8 a.m. ET (1200 or 1300 GMT)
  • It will be half a percentage point at least
  • “The only way to get a positive market reaction is to deliver more than expected”
  • will include “forward guidance”
Here is the link for more: Don’t keep your powder dry
A coordinated global interest rate cut by the top central banks will happen this Wednesday, March 4.

The good news is that the European stock markets are closed

German DAX, -3.1%. France’s CAC down -3.8%

The good news for the European stock markets is that they are close for the day.  Each of the major indices had sharp declines. Sometimes closing feels good. The provisional closes are showing:
  • German DAX, -3.1%
  • France’s CAC, -3.2%
  • UK’s FTSE 100, -3.5%
  • Spain’s Ibex, -3.8%
  • Italy’s FTSE MIB, -2.6%
To give an idea of the year to date performance of the major indices :
  • Germany, -6.65%
  • France, -7.6%
  • UK FTSE 100, -9.7%
  • Spain’s Ibex, -5.6%
  • Italy’s FTSE MIB, -2.8%
Comparing to the US market year-to-date:
  • Dow industrial average, -7.6%
  • S&P index, -5.63%
  • NASDAQ index -2.42%
In Asia the year-to-date’s are showing:
  • Japan’s Nikkei, -7.22%
  • Hong Kong’s Hang Seng index, -5.01%
  • Australia S&P/ASX 200 -0.39%
  • China’s Shanghai index -1.93%

In other markets as London/European traders look to exit:

  • gold is trading up $12.80 or 0.78% at $1653.72
  • WTI crude oil futures are trading down $-2.08 or -4.25% of $46.66
In the US stock market the snapshot of the major indices currently shows:
  • S&P index -69.3 points or -2.22% of 3047.44
  • NASDAQ index -221.2 points or -2.46% at 8759.96
  • Dow -578 points or at -2.17% at 26371
In the US debt market yields are sharply lower with the 2 year down -8.9 basis points. The 10 year is down -5.8 basis points.. The 2 – 10 yield spread has widened to 20.42 basis points from 17.24 basis points yesterday on increasing expectations that the FOMC will be forced to lower rates
US yields are lower across the board with a letter yield curve
In the European debt market, yields are mixed with German, France, and UK yields lower while Spain, Italy, Portugal yields are higher (flight to safety and out of the riskier countries):
European yields are mixed
In the forex market, the EUR is the strongest (and got stronger in the session).  Germany did say earlier today that they would contemplate more fiscal stimulus and technicals improved. The EURUSD did run into resistance against the 1.100 level however.
The weakest currency is the CAD as oil continues to get hammered. The GBP and USD are also weaker on the day:

The front end is pining for Fed cuts

The bottom continues to fall out

The bottom continues to fall out
US 2-year yields are now trading more than 40 basis points below Fed funds. The odds of a March 18 cut in the OIS market have risen to 35% from 6% last Thursday.
Many market participants are deciding that they would rather get 1.14% for the next two years than hold stocks. If you believe this is going to be a pandemic, that’s entirely reasonable because the Fed will cut to zero and the dollar is always does well in times of trouble.
It’s incredible how the thinking in markets can go from ‘return on capital’ to ‘return of capital’ in a few days.

Gold is spiking higher and up over $30 on the day or 1.83%

High price reached $1679.70

The price of spot gold has surged over $30 or 1.83%. The price high just reached $1679.70.  That’s the highest level since February 6, 2013.

Spot gold has reached the highest level since February 2013

Dollar poised to benefit as China economic growth takes virus hit – Citi

The firm says that the dollar is well placed to benefit from the situation compared to other G-10 currencies in the market

Dollar

Citi’s currency strategist, Adam Pickett, says that “consensus expectations have not yet fully adjusted to the reality of weaker Chinese growth that will result from efforts to contain COVID-19”.

Adding that the market is underpricing the possibility of China’s economy being dealt a blow and overvaluing the prospects of recent stimulus measures. As such, Pickett argues that the dollar stands to benefit and outperform in this scenario.
Noting that the greenback should outperform against open manufacturing economies such as the NOK, NZD and EUR. Although safe havens may perform better, the US economy and key trading partners are “likely to be insulated”, he argues.
Additionally, he points out that market hopes for meaningful Chinese stimulus to ensure a V-shaped recovery are overblown – saying that the current Chinese administration “still prefers slower, sustainable growth than previous cycles”.
This adds to the NAB dollar call earlier in the day here but again, I would say it is conditional upon which currencies you’re looking at and on what scenario.
A highly risk-off landscape would still favour the yen more so than the greenback but against the likes of the kiwi and euro, the dollar definitely will shine if the situation plays out as what is described by Pickett above.

China Securities Journal reports PBOC may conduct an MLF this week at a lower rate

MLF is medium term lending facility, 6 to 12 month loans to banks

Lowering the rate would be another effort at stimulus from the  People’s Bank of China in the wake of the coronavirus outbreak. There is MLF maturing this week.