A busy economic week with rate decisions, OPEC and nonfarm payrolls comes amid the midst of the Coronavirus and investors await to price the COVID-19 impact on numbers.
Analysts expect the epidemic to deal a sharp blow to growth with many forecasting a severe downturn in the first quarter. Pandemic fears pushed markets off a precipice last week, wiping more than $5 trillion from global share value as stocks cratered to their steepest slump in more than a decade.
Investor panic last week sent bonds soaring and stocks plunging.
As the coronavirus continues to slam activity, shake up the global economy and weigh on investor risk appetite, leaders in Europe, the Middle East and the Americas rolled out bans on big gatherings. Also stricter travel restrictions are imposed as cases of the new coronavirus spread around the world.
Traders raised their bets of an interest rate cut by the U.S. Federal Reserve this month to shield the economy from the rapid spread of the coronavirus.
All the same, highlighting the risks posed by the virus, BOJ Governor issued a statement to say the central bank would take necessary steps to stabilise financial markets.
Investors placed their hopes on a coordinated global monetary policy response to weather the damaging economic COVID-19 impact.
A further set of manufacturing surveys from around the world due later on the week will provide investors more detail on the virus’ impact on the global economy. Later in the week, central bank meetings in Australia, on Tuesday, and Canada, on Wednesday, will be closely watched.
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Reports of more coronavirus cases in the United States undermined the perceived strength of the U.S. economy. Such undermining supported the euro and other major currencies against the dollar.
The EUR/USD reversed directions and posted strong gains of 1.7%, the largest in two years. The euro finally put together an excellent week, but is still down close to 2% in 2020. The U.S. economy continues to outperform the Eurozone, and much of last week’s gains for the euro may have been profit-taking.
The common currency’s rise stemmed from unwinding of so-called euro carry trade, in which speculators borrow the euro to invest in higher-yielding currencies, market players said.
GBP/USD dropped sharply last week, losing 1.1%. Among developed market currencies, the pound is seen more vulnerable than its peers at time of major economic crisis as UK’s sizable current account deficit meant the country depends on foreign capital.
The Dollar/yen reversed directions in dramatic fashion, sliding 3.0% last week. As the coronavirus continues to spread, jittery investors flocked to the safe-haven Japanese yen. USD/JPY touched a low of 107.51 last week, its lowest level since early October. The Japanese currency had risen 3.2% last week, the biggest gain since July 2016. Japan’s current account surplus and the yen’s vast liquidity make the yen behave like safe haven asset.
The AUD/USD fell 1.7% week, its sharpest weekly decline since July. The pair dropped to its lowest level since March 2009.
The USD/CAD jumped 1.3% last week, its strongest weekly gain since February 2019.
The week ahead – COVID-19 impact on data and policies
The calendar features interest rate announcements in Canada and Australia as well as UK and Eurozone PMIs. The week wraps up with U.S. nonfarm payrolls report.
- On Monday (02.03) the final PMI reading from Eurozone (Spain, Italy, France, Germany, Eurozone) – Eurozone Manufacturing PMIs are expected to confirm the initial releases from late February, and all the estimates are below 50, which points to contraction.
- On Tuesday (03.03) the final estimate for the Eurozone Inflation dues out. With the China coronavirus taking its toll on the Australian economy, there is some pressure on the RBA to lower rates. The release of the RBA Rate Decision on the day will show if the pressure was enough.
- On Wednesday (04.03) the focus shifts to Services PMI’s from Eurozone (Spain, Italy, France, Germany, and Eurozone). Services sector numbers have generally been better than those in the manufacturing one. Also, BoC Rate Decision is due.
- On Thursday (05.03) oil ministers from OPEC and non-OPEC nations will meet for a crucial meeting in Vienna. OPEC has proposed cutting production in order to stabilize sagging oil prices, but it needs Russia on board if the cuts are to have any effect.
- On Friday (06.03) all eyes are on Nonfarm payrolls and wage growth. Both aremarket-movers which can have a significant impact on currency movement. NFP is expected to drop from 225 thousand to 185 thousand, while wage growth is projected to edge up from 0.2% to 0.3%.
Follow this week’s economic calendar.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, CNBC, FX street