The Asian markets were ravaged by the rapidly spreading coronavirus in Europe and oil-price plunge, which triggered a massive flight to safety in the US bonds, gold and Japanese yen. The Japanese benchmark, the Nikkei 225 dived over 6% while the Australian equities lost 7%.
The 30+% slump in oil prices fueled by the launch of a price war by Saudi Arabia over the weekend, after Russia rejected OPEC’s proposal to deepen production cuts by an additional 1.5m barrels per day (bpd) until the end of the year, aggravated the economic uncertainty already persisting due to the virus outbreak.
WTI fell below $28 mark and hit the lowest since February 2016 at $ 27.34 while Brent tested the $ 31 mark. The risk-off flows in the US bonds led to over 30% collapse in the US Treasury yields, with the entire yields curve having dropped under the 1% level. The US equity futures crashed 5% alongside and the trading was halted.
The US dollar index bore the brunt of the rout in the Treasury yields and increased odds of a 75bps March Fed rate cut, despite broad risk-aversion. Gold prices, on the other hand, reached a new seven-year high at 1703.40 but swiftly corrected back on the 1600 level.
Within the currency markets, USD/JPY saw a flash crash to a new multi-year low of 101.59 but quickly reversed to around 102.80 region. The rest of the majors also witnessed massive moves, with EUR/USD almost tested 1.15 handle, AUD/USD downed to 0.6320 and then rebounded to around 0.6550.
The Kiwi also bounced-off 250-pips from 0.6029 lows while USD/CAD rallied to 1.3758. The USD/CHF pair fell to over a two-year low of 0.9192 as risk-aversion boost the safe-haven Swiss franc. The cable was the least affected by the Asian volatility, as it failed to survive above the 1.3100 level.
Key focus ahead
The coronavirus updates and oil-price dynamics will continue to have a significant impact on the risk sentiment and eventually on the markets, as we head into Europe. Therefore, the economic data releases will likely have virtually no impact on the fx board and will play second fiddle.
On the data front, the immediate focus is on the Swiss Jobless Rate due at 0645 GMT while the German Trade and Industrial Production data will drop in at 0700 GMT. Later on, at 0930 GMT, the Eurozone Sentix Investor Confidence will also grab some attention ahead of this Thursday’s key European Central Bank’s (ECB) monetary policy decision.
In the NA session, the Canadian Housing Starts and Building Permits data will be reported at 1330 GMT, in absence of any key US economic news.
EUR/USD hits 14-month high as entire US yield curve drops below 1%
EUR/USD rose to 1.1495, the highest level since January 2019 as oil prices crashed on Saudi-Russia price war talk, bolstering the coronavirus-led risk aversion. Risk-off strengthened the demand for treasuries and pushed the entire yield curve below 1%.
OPEC: Prospect of an oil price war
After Friday's collapse in OPEC+ talks, the oil market could be facing a price war. Russia and Saudi Arabia have around 2-2.5mb/d in spare capacity they could use to drive down prices.
It’s time to consider the possibility that the coronavirus pandemic could bring an end to the bull market.
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