Refocus on virus leads to Asian sell-off

A combination of reports that firms in China have been suspending operations in an effort to contain the coronavirus and analysts cutting forecasts for Chinese economic growth led to Asian equity markets being pummeled overnight. The Chinese yuan sold-off aggressively, the offshore USD/CNH briefly touching the psychologically important 7 per dollar. The US dollar index slipped lower, US equities are lower and US Treasury 10YR yields dropped. Traders are digesting yesterday’s no change in the Fed monetary policy and today’s no change in Bank of England policy.

“The most difficult thing is the decision to act, the rest is merely tenacity.”
Amelia Earhart, American aviation pioneer
  • FX Rates
    January 30, 2020

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  • USD

    The dollar is off slightly and US equities have opened lower. US Treasury 10YR yields fell to 3-month lows at 1.57%. US economic data released today was mixed: Q4 GDP expanded by 2.1%, US consumer spending moderated, business investment slowed, the trade deficit shrank and home construction grew. Despite no change in Fed policy, traders had a slightly dovish interpretation of the Fed’s statement. Chairman Powell changed the wording of the Fed's view on household spending from “strong” to “moderate” and he stated that “business fixed investment and exports remain weak.”


    The Bank of England held its benchmark rate at 0.75% today. Since traders were split on whether or not the BoE would cut rates, the UK pound rallied following the announcement. In Mark Carney’s last press conference as BoE Governor, he said “since their December meeting, international developments had been positive and the most recent UK data supported the forecast of a near-term recovery in growth.”


    The euro edged higher after support at $1.10 held for another day. Trading in the euro can best be be characterized as light with low volatility. Germany’s inflation y/o/y in January quickened to 1.6% from 1.5% in December, but was slightly lower than 1.7% expected.


    The Canadian dollar weakened to new lows, with the USD/CAD is trading above 1.32 for the first time since early December. Oil prices are lower and a monthly survey by the Canadian Federation of Independent Business of small and mid-sized firms showed that fewer are expected to make capital expenditures in the next three months.


    Trading in the offshore Chinese yuan (CNH) touched 7 per dollar as virus fears dominate Asian financial markets. The PBOC is holding the USD/CNY at a much lower 6.91 in an attempt to project confidence and contain panicky trading.

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Scott Petruska, CFA
Scott Petruska, CFA

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