The market has been keenly focused on Coronavirus fears with large falls seen across global equity markets. Equity markets have now moved in line with what the bond market was forecasting, namely trouble ahead. All week we saw classic risk-off moves with buyers into the safe havens of JPY, CHF, and Gold. As long as the coronavirus keeps spreading, and more cases continue to emerge, then we can expect more falls in global equity markets and buyers of US Treasuries. In other news, the UK released its mandate on Thursday to negotiate with the EU. Expect continued EU-UK trade relationship tension to weigh on the GBP. ’

Key events from the past week

  • AUD: Construction work done, Wednesday, Feb 26. The headline was a bad miss reaching the lowest estimated reading of -3.0%. This was a weak end to a weak year for Australian construction. Around 13% of Australia’s economy comes from the construction sector, so this will weigh on the GDP reading.
  • USD: Dollar Index Falls, Wednesday, Feb 26. The USD has been pressured as future markets are now pricing in a 78.8% chance of a Fed rate cut by a total of 50bps and a 48.9% chance of a rate cut by 75bps between now and December. This increased pricing of US rate cuts caused the Dollar sell-off this week.
  • UK-EU: Future trade talks, Thursday, Feb 27. The GBPUSD was pressured this week on the UK mandate announcement that they are prepared to trade on a ‘no-deal’ basis should trade talks with the EU fail. Expect GBP sellers on pullbacks until the EU and the UK have finalised a deal.

Key events for the coming week

  • Oil: OPEC Meetings, Thursday, March 05. Focus will be on the Vienna meeting next week to see if Russia will agree with the JTC recommendation of cutting production by 600K barrels. If they do, expect a short spike in oil prices.
  • AUD: RBA rate statement, Tuesday, March 03. The RBA kept policy on hold at their February meeting, but the coronavirus threat is very real for the Australian economy, Futures markets are now pricing in a 66%chance of a rate cut by May.
  • Coronavirus: Watch out for the latest virus news. Keep alert to the latest news on the seriousness of the coronavirus spread. Watch out for companies to start announcing problems, especially airlines,

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