EUR data recovers, coronavirus fears smash stocks
Stocks are making all the headlines this morning, with losses extending beyond Japan into European hours, CAC, DAX and FTSE are approx. 2.5% lower across the board as coronavirus fears take a hold, with a 4th death in Italy and S Korea reports 70 new cases. Global activity, be it movement of goods or people will now restrict / disrupt supply chains and production – markets are now reacting.
GBP: After good data on Friday showing UK factory activity rising by the fastest rate in 10mnths, GBP took a hit this morning, with GBP/EUR around 1.1925 and GBP/USD around 1.2920. A slowing in weakness in the service sector has helped GBP rally through 2020. Today, EU ambassadors meet to outline their mandate and stance on the UK leaving the EU – the tone has already been made clear – a tough stance and huge regulatory restrictions if the UK wants a tariff-free deal. GBP will be pushed around by Brexit headlines throughout 2020, which is very much how 2019 panned out.
EUR: A slowdown in activity and across-the-board weak data has seen a lot of pressure on the EUR throughout 2020. Many say the EURO sell-off has been a long-time coming and that a re-alignment in its relative value has corrected the market to a more realistic position.
The driving force behind the sell-off has been Germany dancing with recession, but data this morning from the IFO and manufacturing data on Friday helped the single currency to stabilise – EUR/USD recovering above 1.0800 after sitting below 1.0800 at the end of last week. Internal political turmoil in Germany is not helping, as Merkel’s ruling party hold a crisis meeting after huge losses in Hamburg state elections. This leadership struggle will have a huge impact on the power-structure of the entire EU.
USD: Coronavirus fears have prompted the market to buy USD, gold and Swiss Franc – traditional safe-havens in times of global crises. USD strength comes despite weak data last Friday. This week will see GDP reported on Thursday and Consumer Sentiment on Friday – both are closely watched, ahead of employment data on Friday 6th March.
News from the Federal Reserve’s Strategy Review is that the Fed is discussing the introduction of a ‘range’ for inflation. At the moment, the Fed using monetary policy to target 2% inflation – the introduction of a ‘range would calm markets expectations of an easing or tightening. What does that mean? The FX market may have a slower and calmer reaction to data from the USA. However, we will have to wait and see – FX is not always rational!