We are still trading in two separate modes around coronavirus: the panic/fear mode lessened today. While the hit to the real economy mode is still a wait and see however today's transitory bets are also counting on getting backstopped by an expected PBoC policy impulse
The RBA kept the cash rate on hold at 2.75%, as expected, and forecast Australia's GDP growth at around 2.75% this year. The central bank noted that the recent bushfires and coronavirus would weigh temporarily on domestic growth but overall presented a positive assessment. Given the overly bearish positioning, the Aussie galloped above .6700 before running into sellers, and technical resistance at .6720 as the market continues to push back rate cut forecast from April to March
USD/CNH has moved below 7.00, JPY is trading soft, and rates are a bit higher, copper is up 2%, and oil prices are off the lows.
China equities traded up 1.4% and seem to the primary staging post for "risk-on "after gapping down on open. If the market lean is that the coronavirus outbreak is contained predominantly in China, risk should try and rally a bit more as follow the leader mentality takes hold.
The Euro is trading a bit lower as traders typically use the EUR as a "funding currency" to establish long Asian currency positions. This is both an early and positive sign risk is on the comeback, of course, supported by the PBoC backstop
With the risk-on theme during today's Asian session, USD/CHF is testing the short-term resistance coming in at 0.9680. The next levels to watch in USD/CHF after this are 0.9710 and 0.9760/70.
With the disinflationary shock of the coronavirus in the pipeline, I suspect mainland investors are also likely positioning for a more aggressive PBoC policy response. And as such the general knock in effect had seen the regional proxy hedge trades short cover.
But at the same time, this pipeline is undoubtedly providing a dovish Fed impulse and should support gold on the dip.
Meanwhile, markets await the results of the Iowa Democratic caucuses that have been delayed but challenged to put on a trade on this one given the current school of thought that a Bernie win is a Trump win.
Overall several small positive moving parts are adding up to a more prominent feel-good vibe than expected
Oil Update
Commodities are the pulse of sentiment in the region. After yesterday's drubbing commodity traders are taking solace after Lian Weiliang, deputy head of China's NDRC, expects the economic impact from the coronavirus outbreak to be short-term. And claims, they to be fully capable and confident of winning the battle against the epidemic. China's economic strength, material, and goods accumulation and ability to cope with emergencies are significantly stronger than during the 2002-2003 SARS epidemic, Lian said at a State Council Information Office news conference in Beijing, Xinhua reported [in Chinese] Seem like an overtly Rah Rah statement. Still, the proof will be in the data pudding.
None the less there have been a few more unexpected buyers of oil stepping up to the plate covering shorts, but with the bears looking to fade a move back to Brent 54.85-55.00, upticks could be limited, and we would expect the parabolics to re trend downwards given the absolute demand devastation in China
We still haven't begun to quantify the economic fall out which will likely be market unfriendly so now is probably not the time to dawn the rally cap
Of course, additional OPEC+ cuts are necessary to put a floor on oil prices and may even prompt a bit of rebound around the meeting date. Still, I can't see investors turning bullish on oil or oil equities until the virus is appropriately in the rear-view mirror, and it is possible to quantify its economic impact.
Yuan Watch
The temporary sigh of relief heard across ASEAN currency markets was heaved when the USD/CNY fixing came in at 6.9779 vs. 6.9249 yesterday, a bit lower than the consensus. A fix above 7.00 is the next departure lounge for a currency risk wobble Recall August 2019 and how things quickly devolved when the fix broke 7.0. That's when the USD/CNH premium over USD/CNY started to gap much broader; at the moment, its calm and USD/CNH could veer toward the 7.0 handle.
The Council for the Promotion of International Trade (CCPIT) has announced that businesses in China can now request force majeure certificates if their companies with overseas partners have been affected by the coronavirus outbreak.
As of now, it's not immediately clear if any commodity buyers are privy to these certificates, but there has already been some market chatter that cargo deliveries into China for late February are expected to be delayed. Adds another unwelcome layer of uncertaintly at a time when commodity traders are looking for market clarity.