No Support from ECB’s Pandemic Emergency Purchase, Nor RBA’s Rate Cut and Bond Buying

Market overviews

Once again, it seems that emergency fiscal and monetary measures by global governments and central banks couldn’t be cared less by investors. US Congress’ second stimulus package, ECB’s massive EUR 750B pandemic emergency purchase program, RBA’s rate cut and government bond buying, are all shrugged off. Optimism won’t come back until there is a way to slow the coronavirus pandemic, with close to 220k cases and 9k deaths globally now.

In the currency markets, it’s a two-league game. Safe haven flows are supporting Dollar, Euro, Swiss and Yen. On the other hand, commodity currencies and sterling are all under pressured. Technically, AUD/USD is now pressing a long term fibonacci level at 0.5507 and we’ll see if it can form a base there. Otherwise, 2001 low at 0.4773 will be the next medium term target. USD/CAD is now eyeing 1.4689 (2016 high) and break will resume whole up trend from 2017 low at 0.9056. The more interesting one would be EUR/USD, which is now close to 1.0777 low. We’re not anticipating a firm break there for now. But who knows.

In Asia, currently, Nikkei is down -1.49%. Hong Kong HSI is down -4.25%. China Shanghai SSE is down -2.14%. Singapore Strait Times is down -4.44%. Japan 10-year JGB yield is up 0.013 at 0.080. Overnight, DOW dropped -6.30%. S&P 500 dropped -5.18%. NASDAQ dropped -4.70%. 10-year yield jumped sharply by 0.269 to 1.266.

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RBA cuts rate to 0.25%, starts government bond purchases

RBA announces a package of coronavirus response today. Firstly, cash rate is cut by 25bps to 0.25%. Additionally, the central bank will start purchases of government bonds to keep 3 year yield at around 0.25%, starting tomorrow. A three-year funding facility will also be set up to provide credit support to small and medium-sized businesses. Lastly, exchange settlement balances will be remunerated at 10 basis points, instead of zero.

The central said, “the various elements of this package reinforce one another and will help to lower funding costs across the economy and support the provision of credit, especially to small and medium-sized businesses.” “Today’s policy package from the Reserve Bank complements the welcome fiscal response from governments in Australia. Together, these measures will support jobs, incomes and businesses through this difficult period and they will also assist the Australian economy in the recovery.”

ECB launches EUR 750B Pandemic Emergency Purchase, will considering lifting self-impose limits

In a unexpected move, ECB announced a massive EUR 750B Pandemic Emergency Purchase Programme (PEPP). The temporary program is for countering the “serious risks to monetary policy transmission mechanism” and the economy outlook posed by “outbreak and escalating diffusion” of the coronavirus. Purchases of private and public sector securities will be conducted until the end of 2020, including all asset categories under the existing APP.

ECB Governing Council pledged to “ensure that all sectors of the economy can benefit from the supportive financing conditions that enable them to absorb this shock”. Also, it’s “fully prepared to increase the size” of the purchases and adjust the composition, “by as much as necessary and for as long as needed”. The central bank will also consider to revise the “self-imposed limits” that might hamper its actions.

“Extraordinary times require extraordinary action,” ECB President Christine Lagarde said. “There are no limits to our commitment to the euro. We are determined to use the full potential of our tools, within our mandate.”

US passed second coronavirus response package, more to come

US Senate passed the second major coronavirus response bill overnight, which include paid sick leave, food assistance and financial help for coronavirus testing. President Donald Trump quickly signed the measure hours after the vote. Republican and Democratic leaders are already working on the third proposal.

Senate Majority Leader Mitch McConnell, after passing the vote, “the Senate’s going to stay in session until we finish phase three, the next bill, and send it over to the House.” He said he couldn’t predict when a bill will be ready for a vote, but “we are moving rapidly because the situation demands it.”

Fed Kashkari: Coronavirus impacts potentially even worse than financial crisis

Minneapolis Fed President Neel Kashkari “how the virus progresses is really going to determine what the ultimate economic impact is”. He’s rather pessimistic, noting “it unfortunately could be devastating, like the financial crisis, or potentially even worse.”

Meanwhile, he told the Congress that “speed is of the essence here”. “Whatever Congress is going to do, the faster they can do it, and the more aggressively they can do it, the more people we can help.”

On the data front

New Zealand GDP grew 0.5% in Q4, matched expectations. Australia employment grew 26.7k in February as unemployment rate dropped to 5.1%. Japan national CPI core slowed to 0.6% yoy in February, down form 0.8% yoy, matched expectations.

Looking ahead, SNB rate decision is the major focus in European session. Swiss will also release trade balance. Later in the data, Canada will release ADP employment and new housing price index. US will release jobless claims, current account and Philly Fed survey.

EUR/AUD Daily Outlook

Daily Pivots: (S1) 1.8300; (P) 1.8359; (R1) 1.8462; More…

EUR/AUD surges to as high as 1.9799 so far today and there is no sign of topping yet. 1.8619 long term projection target was taken out without any hesitation. Intraday bias remains on the upside for 2.1127 (2008 high) next. On the downside, touching of 1.8820 minor support will turn intraday bias neutral and bring consolidations first.

In the bigger picture, up trend from 1.1602 (2012 low) is in progress and 100% projection of 1.1602 to 1.6597 from 1.3524 at 1.8619 is already met. Further rally would be seen to 2.1127 (2008 high) and possibly to 161.8% projection at 2.1706. On the downside, for now, touching of 1.6597 resistance turned support (2015 high), is needed to indicate medium term reversal. Otherwise, outlook will stay bullish even in case of deeper pull back.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
21:45 NZD GDP Q/Q Q4 0.50% 0.50% 0.70% 0.80%
23:30 JPY National CPI Core Y/Y Feb 0.60% 0.60% 0.80%
00:30 AUD Employment Change Feb 26.7K 8.5K 13.5K 12.9K
00:30 AUD Unemployment Rate Feb 5.10% 5.30% 5.30%
00:30 AUD RBA Bulletin
03:30 AUD RBA Rate Decision 0.25% 0.50%
04:30 JPY All Industry Activity Index M/M Jan 0.8% 0.20% 0.00% -0.1%
07:00 CHF Trade Balance (CHF) Feb 4.23B 4.78B
08:30 CHF SNB Interest Rate Decision -0.75% -0.75%
12:30 CAD ADP Employment Change Feb 25.9K
12:30 CAD New Housing Price Index M/M Feb 0.10% 0.00%
12:30 USD Initial Jobless Claims (Mar 13) 220K 211K
12:30 USD Current Account (USD) Q4 -109B -124B
12:30 USD Philadelphia Fed Manufacturing Survey Mar 10.2 36.7
14:30 USD Natural Gas Storage -5B -48B