Here is what you need to know on Thursday, March 19:
Coronavirus continues wreaking havoc on financial markets with investors in a “sell everything” mentality. Trading in US stocks was halted once again on Wednesday, and global equities are under pressure on Thursday as well. White House adviser Larry Kudlow suggested the government could buy shares, albeit this idea failed to help sentiment. The Federal Reserve expanded its measures to provide liquidity.
The US dollar is the almost sole beneficiary, soaring across the board. The world’s reserve currency is in extreme demand, also due to the distressed liquidation of assets. Rising US yields – rising amid President Donald Trump’s plans to spend over $1 trillion – also contribute to the greenback’s rise.
Congress has advanced a coronavirus relief bill, and more legislation is on the agenda to provide stimulus. The administration may send every American $2,000 per month. Weekly jobless may show a rise in claims as shutdown may trigger the first layoffs.
See: Jobless Claims Preview: A rise could signal labor market unrest
Oil vanishes: Perhaps the biggest loser has been oil, with WTI touching $20, the lowest since 2002 as the Saudi-Russian price war exacerbated the fall in demand as people stay at home and do not fly. In the most extreme scenario, storage could run out, forcing the shutdown of production. Currencies of oil-exporting nations have been crushed with crude, USD/CAD topping 1.46 at one point.
Among currencies, the pound’s fall was spectacular, with GBP/USD dropping below 600 pips on Wednesday at one point, losing 1.15 and trading at the lowest since 1985. Apart from overwhelming dollar strength, it seems that traders punished the pound for the UK’s former “herd immunity” policy – letting the virus spread. Prime Minister Boris Johnson has since changed tack, going for social distancing. The whole of the UK will now close schools, and the government is considering putting London on lockdown.
EUR/USD is trading around 1.09, holding up relatively well after the European Central Bank announced an emergency €750 billion “pandemic emergency purchase program” (PEPP) to buy private and public sector securities. The ECB is battling the sell-off in government debt, especially in Italy, where countries have opened their purse strings, and the “bond vigilantes” have doubts if loans can be repaid. The bank said it would allow flexibility with its self-imposed rules and consider adding more.
The number of Covid-19 cases in Europe has surpassed that of China, with Italy reporting 475 deaths on Wednesday – the highest increase yet. Additional countries have announced lockdowns. German Chancellor Angela Merkel addressed the nation in a rare event, and Lufthansa announced that most of its planes would be parked. The good news comes from China, where Hubei province – the source of the virus – reported no new cases.
The Japanese yen also succumbed to the dollar strength, with USD/JPY advancing toward 109, reversing falls seen earlier this month.
The Swiss National Bank makes its quarterly rate decision today and may respond to the ECB’s emergency decision. The SNB’s Libor Rate stands at -0.75%, and the Swiss franc’s safe-haven status has been eroded.
The Australian dollar crashed, with AUD/USD hitting 0.55 at one point, the lowest in nearly a decade. The Reserve Bank of Australia slashed interest rates to 0.25% in a special meeting and announced it is targeting the yield on three-year bonds – aiming at holding it around 0.25% in a fresh Quantitative Easing program.
The New Zealand dollar was also walloped with NZD/USD trading at similar levels to the Aussie.
Gold, which previously enjoyed safe-haven status, remains pressured around $1,500 amid the broad sell-off.
Cryptocurrencies remain stable, with Bitcoin holding above $5,300.
More: US dollar rules in currency market funding frenzy
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