Summary: It was a classic case of risk-off, risk-on as promising signs from a US coronavirus vaccine trial on humans emerged. Moderna Inc., a US biotech company announced yesterday that its human trial for the coronavirus produced antibodies for Covid-19 in all 45 participants. Which saw the company’s stock price surging 22%. Meantime Federal Reserve Chair Jerome Powell said that the US economy could shrink between 20-30% in the second quarter but a depression is unlikely in an interview with 60 Minutes. Wall Street stocks lifted. The DOW jumped 4% to finish at 24,565 (23,665). The S&P 500 rallied 3.45% to 2,952 (2,860). In FX, the best performers were New Zealand’s Kiwi, up 1.9% to 0.6040 (0.5935) and the Aussie Dollar, 1.78% higher to 0.6525 (0.6415). The antipodeans were also buoyed by comments from Chinese President Xi who said that they did everything in their power to provide information on the crisis. China also pledged US$ 2 billion to help other countries fight the coronavirus outbreak over the next 2 years. Xi, speaking at the World Health Assembly, said that China’s Covid-19 vaccine development “will be made a global public good”. Vaccine hopes and climbing demand saw Oil prices gain. Brent Crude lifted 9.2% to US$35.65 (US$33) while WTI climbed 8.7% to US$32.30 (US$29.80). Against the Canadian Loonie, the US Dollar fell 1.18% to 1.3950 (1.4112). The Dollar Index (USD/DXY) a gauge of the Greenback’s value against a basket of 6 foreign currencies, retreated to 99.62 from 100.36 yesterday, down 0.76%. Sterling, under pressure for most of the day, lifted 0.9% to 1.2195 (1.2105) on the broad-based US Dollar weakness. The Euro rebounded to finish up 0.95% to 1.0915 (1.0815). German Chancellor Angela Merkel and French President Emmanuel Macron unveiled a proposal for a EUR 500 billion coronavirus recovery fund to help the EU’s worst hit nations.
Global Treasury yields were higher. The benchmark US 10-year bond rate jumped 9 basis points to 0.73%. Germany’s 10-year Bund rate was last at -0.47% from -0.54%. Japan’s 10-year JGB yield was unchanged at -0.02%. Australia’s 10-year bond rate was also unchanged at 0.90%.
On the Lookout: A vaccine that works in battling the Covid-19 outbreak is the world’s biggest hope today. Moderna’s positive report in the early stage of its coronavirus vaccine results in human trials at a time when governments around the globe are lifting lockdown restrictions and opening businesses boosted risk appetite. The Cambridge, Massachusetts company also said that if all goes well a vaccine will not be ready for the market until early 2021. Meantime, in its battle for one-upmanship with the US, Chinese President Xi Jinping said that their Covid-19 vaccine development and deployment will be made a public good when it is available. Markets will focus on these developments today. Data released yesterday were light. Japan’s Preliminary Q1 GDP contracted to -0.9%, bettering forecasts of -1.1%.
Today kicks off with New Zealand’s Q1 PPI Input and Output. Australia follows with the release of the RBA’s latest Monetary Policy meeting minutes. Japanese Revised Industrial Production rounds up Asian data. UK Employment data follow with UK Claimant Count Change (Unemployment Claims), Average Earnings Index (Wages), and Unemployment rate. Europe sees German and Eurozone ZEW Economic Sentiment Indexes. US data releases are its Building Permits, Housing Starts. The G7 satellite meeting to discuss the measures to mitigate the economic impact of Covid-19 is main event.
Federal Reserve Chairman Jerome Powell testifies before the US Senate Banking Committee on the coronavirus aid and relief (12 midnight Sydney).
Trading Perspective: The pattern of risk-on, weaker US Dollar continues. There are, however, risks that are still evident. The company that makes the promising vaccine said that if all goes well a vaccine will not be ready for the market until early 2021. In FX, it’s a long time until then.
US bond yields jumped overnight with the 10-year bond yield up 9 basis points. US 30-year rates climbed to 1.44% (1.27%), up a whopping 44 basis points. Other global bond yields were either flat or their rallies were not to the extent of that of the US.
The US-China trade war is ongoing and will remain in the spotlight with other developments. A pullback in the US Dollar is likely from current levels. We look at the various currencies. The spotlight will fall on Jerome Powell’s second testimony before the US Senate banking committee on the Fed’s outlook for further stimulus and possibly negative rates.
AUD/USD – Risk-On Boost Checked by China-Aussie Trade Spat
The Australian Dollar, boosted by the risk-on market stance, jumped 1.78% to 0.6525 against the Greenback in late New York from yesterday’s soggy opening at 0.6415. Meantime, news released this morning saw China confirming an 80.5% tariff on Australian barley as part of its retaliation to Aussie PM Scott Morrison’s push for a global investigation into the Covid-19 outbreak. Developments in trade, vaccines for the virus (either in the US and/or China), and Jerome Powell’s testimony later will influence the Battler.
The yield gap between US and Australian 10-year bonds has also narrowed to 17 basis points. Australia’s 10-year yield was last at 0.90% while US 10-year rates closed at 0.73%. This will prevent any meaningful Aussie rallies to the immediate resistance at 0.6560. The next resistance level can be found at 0.6600 cents (strong). Immediate support can be found at 0.6500 followed by 0.6470.
Look for a likely range trade today of 0.6450-0.6550. Prefer to sell rallies.
EUR/USD – Rebounds on Macron/Merkel EU Recovery Plan, Roadblocks Exist
The Euro came to life, rebounding strongly from its recent base around the 1.08 level to an overnight high at 1.09272 before settling at 1.0915 at the New York close. The shared currency was boosted by the news that German Chancellor Angela Merkle and French President Emmanuel Macron had agreed to a EUR 500 billions coronavirus recovery fund to aid EU member states. Broad-based US Dollar weakness also buoyed the Euro. The recovery proposal still needs support from the Netherlands and requires legislative approval. This follows the failure of the EU Summit to agree on a potential stimulus plan held late last month.
EUR/USD has immediate resistance at 1.0930 followed by 1.0970 and 1.1000 (strong). Immediate support can be found at 1.0880 followed by 1.0850 and 1.0810. The buying support at 1.0800 was strong considering how the level held and the strong bounce overnight.
Overnight, Germany’s 10-year Bund yield was up 7 basis points to -0.47%, and while up, did not match that of the US 10-year rate (up 9 BP). Let’s not forget that in last week’s Commitment of Traders report net speculative Euro long bets (+EUR 76,299 contracts) were also at 87% of yearly highs. This will prevent any meaningful gains above the 1.1000 level. We look at the latest COT report, due tomorrow.
Look for a likely trading range today of 1.0850-1.0950. Prefer to sell rallies.
