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Financial markets infected with a serious case of Coronavirus

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Over the past week, economic data from most countries has taken a back seat to concerns around the expanding Coronavirus epidemic. The rapid drop off in economic activity in China, and its effect on supply chains around the world, spooked global stock markets with US equities leading the sell off. All three US benchmark indexes declined around 11% or 12% percent from their recent peaks. This has led to many forecasters now calling for interest rate cuts from most major central banks. There is even speculation that we could see coordinated central bank action in the coming weeks, much like we saw during the 2008 financial crisis. First out of the blocks however is going to the Reserve Bank of Australia, as their regular interest rate decision is scheduled for this afternoon. A cut from the RBA is widely expected with interest rate markets now fully pricing it in.

Only time will tell how this epidemic will evolve. But one thing is for sure, the longer it goes on the more damage is done to global economic activity. How some industries will cope, or how long individual business can survive, when 70% or more of their activity dries up overnight, is anyone’s guess. Many businesses in China are reporting they only have around 3 months before cash reserves run out. The global economic recovery from this sudden shock to the system is going to take a lot longer to recover from that the actual epidemic itself.

Major Announcements last week:

  • US Consumer Confidence 130.7 vs 132.6 expected
  • ANZ NZ Business Confidence -19.4 vs -13.2 last
  • Australian Private Capital Expenditure -2.8% vs 0.5% expected
  • Canadian GDP 0.3% vs 0.1% expected
  • Chinese Manufacturing PMI 35.7 vs 45.1 expected
  • US ISM Manufacturing PMI 50.1 vs 50.5 expected

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