Daily Market Outlook, February 27, 2020
The US market tried to stage a relief rally at the start of the overnight session. However, the valiant attempt couldn’t keep up with renewed concerns about the virus. S&P 500 ended down for the 5th day – albeit closing at a relatively mild -0.4%. Nasdaq did retain its gains but was up by a negligible margin. UST10y yield stayed around 1.34% level. Crude sold off further, however, with WTI down by 2.4%.
The lingering jitters came as concerns about the global spread of the virus continued to dominate. Brazil confirmed a case, which is the first in Latin America. This comes as cases are reported in countries as far afield as Spain and Pakistan.
US FDA warned that we are “on the cusp” of a global pandemic.
The number of new infection cases now come mostly outside of China (870 vs 406 from Mainland China) according to the WHO; Outside of China, there are now more than 3,000 cases across 38 countries which include 43 deaths as of Wednesday morning. Germany said that it was already impossible to trace all infections.
The Dow Jones (-0.5%) and S&P 500 (-0.4%) fell for the fifth back-to-back session despite higher openings. European markets generally closed lower save for France and the UK; Asian markets sold off.
Investors continued to seek shelter at safe havens leading treasuries yields to fall 2-4bps- 10Y UST yields slid further to 1.339%. Meanwhile gold prices stabilized, adding 0.4% to $1,640.96/ounce after previous session’s fall. Dollar regained footing, strengthening against nearly all major currencies.
US new home sales surged to highest since Jul-2007: New home sales staged a major comeback, surging by 7.9% MOM in January (Dec: +2.3% revised) following an upwardly revised 2.3% gain to an annualized pace of 764k (Dec: 708k). This marks its strongest pace since mid-2007 as the currently low interest rates environment makes it conducive for buyers to enter the market following the significant fall in US treasuries yields from December to January. The separately released MBA mortgage applications also rose 1.5% last week (previous: -6.4%), aided by a weekly drop in borrowing cost.
Hong Kong GDP contracted 1.2% in 2019: Hong Kong real GDP fell by 2.9% YOY in 4Q19 (3Q: -2.8%), bringing the full-year 2019 contraction to 1.2% (2018: +2.9%), its first recession since the Global Financial Crisis (GFC) in 2009. This reflects falling personal consumption, business investment and exports, in a year plagued by domestic unrests, weak international trade and nascent Covid-19 at year-end. Financial Secretary Paul Chan yesterday announced a HK$120billion worth of stimulus package to combat the current downturn but outlook nonetheless remains weak in our view on the back of deteriorating consumer and business sentiment, not to mention the spillover effect of the expected slowdown in neighbouring China.
A number of central bank members are due to speak today, with those by ECB President Lagarde and the Bank of England’s Cunliffe, likely to attract the most attention. Ms Lagarde will deliver the opening remarks at an event organised by the Bank of England at the launch of the COP 26 Finance Agenda on climate change. While Mr Cunliffe is due to speak at a conference on China’s Trade and Financial Globalisation.
Citi Preliminary Month End Rebalancing view: The asset rebalancing signal is stronger than the hedge rebalancing one at +1.4 hist std. dev. The FX impact is USD selling against JPY and GBP at month end
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.0775 (EUR916mn); 1.0820 (EUR1.1bn); 1.0900 (EUR501mn); 1.0915 (EUR712mn); 1.0925 (EUR558mn); 1.0955 (EUR970mn)
- GBPUSD: 1.2990 (GBP279mn)
- USDJPY: 109.65 (USD450mn); 110.25 (USD330mn); 111.00 (USD1.1bn)
Technical & Trade Views
EURUSD (Intraday bias: Bullish above 1.0880 bearish below)
EURUSD From a technical and trading perspective, bullish reversal seen Friday has flipped the daily chart bullish, contrarian players will be looking for a move back through 1.09 to encourage trend followers to further cover short positions. However note sizeable optionality in play today towards 1.09 so likely see this area as magnetic ahead of the NY cut. UPDATE Optionality drew prices higher yesterday, however, we are now testing pivotal 1.0920/30 resistance, look for some selling pressure to emerge here, ahead of the descending trendline resistance sighted at 1.0950, if nascent bulls can defend 1.0880 then we may see further short covering into month end
GBPUSD (Intraday bias: Bearish below 1.2980 Bullish above)
GBPUSD From a technical and trading perspective, prices once again holds a test of range support below 1.29 as this area holds there is the potential for another upside attempt to test descending trendline resistance sited around 1.3050, however, a failure to recapture ground above Friday’s highs will concern the nascent bullish spirits and likely see a retest of last week’s lows before another basing attempt. UPDATE failure to recapture solid ground above 1.30 saw long liquidation, this morning 1.2950 is the major upside hurdle, as this level stands look for the retest of last weeks lows
USDJPY (intraday bias: Bullish above 110.50 Bearish below)
USDJPY From a technical and trading perspective, test of bids and stops to 110.50 prompts a recovery attempt from bulls, however, as 111.10 caps upside attempts look for a more sustained test of bids back towards 110, a failure to find support here will suggest a false upside break and open a move to test support back at 109 as highlighted in the daily chart. If buyers do make a show of support to push back through 110.80 we could be in the process of developing a more significant base at the midpoint of the daily channel. UPDATE as bulls defend yesterday’s low look for a test of descending trendline resistance sighted towards 110.50 above here and 111 offers and stops will likely be tested, a failure to make ground above 110.50 will see stops taken out at yesterday’s lows en-route to 109.50
AUDUSD (Intraday bias: Bearish below .6600 Bullish above)
AUDUSD From a technical and trading perspective the equality target down to .6600 has been achieved, anticipate the potential for some profit taking around current levels, as .6570 supports we may witness an attempt to base here for a retest of offers back towards .6650. Basing attempts persist despite the overnight spike lower. UPDATE without establishing trade above .6600, bears will press for new lower ground to challenge the next figure at .6500 as .6775 contains upside attempts
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