By Rhys Miles
Just like the mindless fools stockpiling toilet paper and creating a shortage when there shouldn’t be one, the absolute fear of a coronavirus driven recession may just become self-fulfilling. The fact that there is now a 71% probability that the US Fed will cut rates a further 50 basis points at their March 18 meeting after last week’s 50 point cut says it all.
Actual real data out of the US continues to be strong with Friday night’s non-farm payroll data coming in at +273k against +175k expected with the unemployment rate down to 3.50%. Nonetheless, virus fears drove the Dow down at one point nearly 4% but recovering to finish down “only” 1%.
Supported by the expected next Fed move and a weaker USD, the AUD found solid support up until 0.6660 then went from Ox to chicken. Maybe the announcement of the Federal government’s stimulus package this week may see the AUD break through resistance and work its way to a fundamentally supported target of 0.6800.
With the Italian government shutting down a key economic region due to a marked increase in the virus induced death toll and poor Chinese trade balance data spooking the markets the volatility index has reached 10 year highs. Toss in the OPEC alliance with Russia disintegrating and oil prices collapsing we are in for another big week. The ANZ business survey will be released tomorrow (brought forward three weeks) and will be the first to reflect businesses reaction to the virus. The European Central Bank meets on Thursday with policy easing expected.
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