The global risk tone rapidly improved early this week as the global equity market was helped by ongoing hopes for the development of a coronavirus vaccine. Furthermore, China took decisive action to limit both the outbreak and economic fall-out of the coronavirus, as well as surprising the markets by cutting trade tariffs by up to 50% on $75bln of US goods from February 14th. These actions all supported risk assets. As expected we saw outflows from the JPY and CHF and moves into the AUD, NZD, and CAD.

Key events from the past week

• USD: ISM Manufacturing PMI, Monday, Feb 03. The headline reading of 50.9 beat expectations of 48.5. The signing of the phase 1 US-China trade deal has stimulated activity, but the knock-on impact of the coronavirus fears may stunt these signs of growth in the future.
• AUD: Rate decision, Tuesday, Feb 04. The RBA kept rates on hold and was more optimistic than the market anticipated. This resulted in AUD strength along-side the week’s risk-on tones. Governor Lowe stated that the Australian economy is still passing through a ‘gentle turning point’. The question remains how hard the Australian bush fires and coronavirus fallout will hurt the economy going forward.
• USD: ADP Non-Farm Employment, Wednesday, Feb 05. The Dollar Index was strengthened this week on a string of positive US data. The ADP employment and ISM services data out on Wednesdays both exceeded expectations. The expectations for a strong Nonfarm Payroll headline figure on Friday are now high.

Key events for the coming week

• NZD: Rate Statement, Wednesday, February 12. The RBNZ surprised markets at its last meeting in 2019 keeping rates on hold at 1.00%. The latest data has been firm for the NZD as CPI data was only one tick below the RBNZ’s inflation target and unemployment fell to 4.0% from 4.2% expected last week.
• USD: Inflation data, Thursday, February 13. The Fed kept rates on hold at their last meeting but said that they would monitor ‘muted inflation’. In the bigger picture, weak inflation reading here would further increase the chances of a Fed rate cut this year and re-stimulate dollar selling.
• Coronavirus: Watch out for the latest virus news. If the market remains reassured around containment of the virus, expect equities and commodities to be bought on pullbacks. Copper futures look particularly good value on a return to a risk-on mood. In the risk-on market, I would expect buyers from $2.550.