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Here is what you need to know on Tuesday, March 3:

Following a roller coaster ride for European equities, on the heels of the worst week for stocks since the global financial crisis, the consensus on Monday was that central banks will be forced to act as the outbreak of the coronavirus continues to deliver blows to financial markets and the world economy.

News that G7 finance ministers and central bankers will hold a teleconference to discuss their policy response to the economic fallout from the coronavirus also supported the benchmarks on Wall Street. 

At the time of writing, the S&P 500 was up 3.9% and the DJIA was up 4.43%. In Europe, the DAX was down 0.3%, the CAC 40 up 0.4% and the FTSE 100 up 1.1%.

  • The VIX lost 18% to 32.50. 
  • The CRB index was firmer, ending Wall Street +2.54%.
  • Oil rallied on expectations that OPEC+ will agree on output cuts. WTI lifted 5.3% to $47.1/bbl.
  • Gold lifted 0.6% on expectations hat the Fed to cut in March and April, which ultimately illustrates the global suppression of real-rates amid an asymmetric Fed reaction function.
  • The US yield curve bull steepened, with 2-year down 9bps and 10-year down 6bps. 

In US data, the US ISM manufacturing index fell slightly in February, from 50.9 in January to 50.1. However, given the coronavirus disruption only recently became a significant global risk, next month’s data will be reflecting just how much impact it is having on the US economy. 

In FX, fresh dollar weakness enabled commodity-FX to respond in kind. AUD ended on Wall Street +0.30%, the kiwi was flat but ending 30 pips off its highs and CAD was +0.4% vs the dollar. DXY was down by 0.5%. The yen was down 0.4% vs the dollar as USD/JPY moved in on Friday’s point of control. Cable ended -0.45% suffering from UK/EU trade negotiation uncertainties and prospects of a BoE rate cut. The euro defied gravity, extending its impressive carry unwind. 

RBA in focus

As for the day ahead, the Reserve Bank of Austalia will be setting the stage for what we should expect from G7 central banks, responding to the heightened risks of a slowing global economy. The market is split on whether the RBA will hold and a rate cut can’t be ruled out – it is more than fully priced in.

  • RBA Preview: 25bp cut in the bag, 50bp cut possible, or a surprise hold and subsequent rally in AUD