Daily Market Outlook, March 11, 2020

Trading Tips

Daily Market Outlook, March 11, 2020 

Ahead of today’s Budget the Bank of England has announced a package of measures to cushion the market against covid19 effects including a 50bp interest rate cut and a new Term Funding Scheme for small businesses. The Prudential Regulation Authority also set the countercyclical capital buffer at 0% with immediate effect. This will support continued provision of financial services to the real economy. The BoE will hold a press conference at 9am. 

Asian stock markets have fallen again overnight despite yesterday’s gains on Wall Street. Sentiment turned negative after President Trump failed to turn up at a press conference despite his earlier promises that he would unveil a stimulus package on Tuesday. An announcement of a package is still expected imminently. 

Meanwhile, former US Vice President Biden came out top in a majority of Tuesday’s six state primaries making him a strong favourite to be the Democratic contender in November’s Presidential election. 

US small business sentiment rose before Covid-19: The NFIB Small Business Sentiment Index rose modestly to 104.5 in February (Jan: 104.3). However, the data was collected prior to the Covid-19 outbreak which happened much later in the US, thus did not entirely reflect the current state of business sentiment which is likely to have turned weaker in response to rising infection cases.  

Slowest Eurozone growth in nearly seven years: The final reading of Eurozone 4Q GDP growth was unrevised at 0.1% QOQ (3Q: +0.3%)., marking its slowest growth in nearly seven years since late 2013 during the tail end of the sovereign debt crisis. Compared to the same period last year, the single-currency economy expanded by 1.2% YOY (3Q: +1.6%), bringing the full year 2019 growth to 1.2%, a huge slowdown from 2018’s 1.9.% Positive contributions came from household final consumption expenditure that rose by 0.1% QOQ (3Q: +0.5%) as well as gross fixed capital formation which recorded a 4.2% QOQ gain (3Q: -3.8%) Net trade contributed negatively to headline GDP despite exports’ 0.4% QOQ gain (3Q: +0.6%) mainly because of the stronger showing in imports (+2.2% vs -1.3%) after a 3Q contraction. Compared to the previous quarter, the German economy was stagnant in 4Q (3Q: +0.2%) while it’s YOY growth was stable at 0.5% (3Q: +0.6%). The bloc’s largest economy grew a mere 0.6% in 2019 versus 1.5% prior, reflecting the impact of the car industry’s weakness, alongside slower global trade. In the same release, employment growth accelerated slightly to 0.3% QOQ (3Q: +0.2%) in the Eurozone and was stable at 1.1% YOY. While employment appears to be solid, this was however weaker than the 1.4-1.7% peak observed in the period of 2017 to early 2019.  

China consumer inflation slows amid services disruption; factories slumped back to deflation: Consumer Price Index (CPI) inflation moderated slightly to 5.2% YOY in February (Jan: +5.4%) reflecting smaller gain in cost of services (+0.6% vs +1.5%) as the Covid-19 outbreak disrupted services activity particularly in retail and tourism sectors. Food prices shot up nearly 22% YOY (+20.6%) of which pork prices skyrocketed by 135% YOY; The NBS attributed the generally higher food prices to the implementation of strict transport rules, manpower shortages that caused logistic issues and hence higher costs. Some regions were said to be short of food supply following lockdowns of cities. Factories slumped back into deflation with PPI contracting y 0.4% YOY after recording 0.1% YOY gain in Jan that had previously suggested stabilization in prices. PPI had been on declining trend since Jul last year and reached a trough in Oct before slowly trending up in recent months. The fall in PPI highlights the pressure faced by the country’s manufacturing sector amid widespread manpower shortage and slowing demand.  

Continuous fall in Japan machine tools orders: Machine tools orders dropped 30.1% YOY in February (Jan: -35.6%), extending its prolonged (more than one year) trend of contraction in the back of weak domestic and foreign demand.  

Australia consumer confidence slid on Covid-19: The Westpac Consumer Confidence Index fell 3.8% MOM to 91.9 in March (Feb: 95.5), its lowest level in more than five years as consumer sentiment turned markedly poorer in response to the outbreak of Covid-19 worldwide and domestically.  

Home loans beat estimate, indicating strong momentum in Australia housing recovery: Australia approved home loans value topped estimate to record a rather stable 4.6% MOM growth in January (Dec: +4.5%), reflecting a large gain in loan extended to investors (+3.6% vs +3.0%). Owner-occupier loan value managed to post a consistent and solid increase of 5.0% MOM (Dec: +5.0%), indicating the strong momentum of the housing sector’s ongoing recovery. 

Today’s Options Expiries for 10AM New York Cut (notable size in bold)

  • EURUSD: 1.1165 (EUR1.2bn); 1.1170 (EUR451mn); 1.1200 (EUR452mn); 1.1220 (EUR1.0bn); 1.1300 (EUR882mn); 1.1400 (EUR299mn)
  • USDJPY:  105.50 (USD394mn) 
  • GBPUSD: 1.2700 (GBP250mn) 

Technical & Trade Views

EURUSD (Intraday bias: Bullish above 1.1275 neutral below)

EURUSD From a technical and trading perspective, prices spiked higher overnight to test 1.15 some initial profit taking and supply have capped the overnight advance for now. As 1.13 now acts as support look for a test of the yearly first resistance pivot point sighted at 1.1560. From these levels we witness some consolidation,corrective action before the next leg higher. Only a close back through 1.12 would concern the bullish bias.UPDATE price testing pivotal trendline support failure below 1.1240 will suggest correction is underway

GBPUSD (Intraday bias: Bearish below 1.2970)

GBPUSD From a technical and trading perspective, initial test towards 1.32 saw decent supply as 1.30 supports intraday there is a window for another run at stops above 1.32 however look for a fade here and a deeper correction to develop to test support back to 1.2950 UPDATE as 1.2970 now acts as resistance look for another leg lower to develop as per Weekly Market Outlook highlighted the next frustration phase for both bulls and bears, only a close through 1.30 would negate this thesis

USDJPY (intraday bias: Bullish above 104 bearish below)

USDJPY From a technical and trading perspective, major gap lower in asian trade takes out the 104.50 support, as this level now acts as resistance bears will look to target the psychological 100 level. Only a close back through 105 would suggest a false downside break.UPDATE a late 2018 redux appears to be in the offing, pivotal will be a breach of 106 to the upside targeting 109 before the next leg lower commences

AUDUSD (Intraday bias: Bearish below .6650 Bullish above)

AUDUSD From a technical and trading perspective significant reversal in fortunes for the AUDUSD as .6530 continues to attract buyers look for a move to test offers and stops above .6700 UPDATE bids fail to support look for a test of .6450 failure here opens a retest of Asian low towards .6300

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