Stocks slide further on neutral Fed

Equities under pressure

There was a broader risk-off feel to activity during this morning’s Asian session, even as onshore China markets remain closed until next week. The Fed kept rates unchanged at its FOMC meeting, adding it was unhappy that inflation remains persistently below the 2% target, which implied that the current low rates would be here for some time. The probability of a Fed cut in July rose to 59% from 44% before the meeting, according to Bloomberg calculations.

US indices slid between 0.17% and 0.26% after a weak close on Wall Street yesterday as early gains were pared. Japan shares slid 0.7% as USD/JPY fell through the 109 handle while the Australian dollar came under pressure across the board.

AUD/USD looks set for a second day of declines today and is poised to close below the 78.6% Fibonacci retracement of the October-December rally at 0.6748. The pair touched a 3-1/2 month of 0.6735 yesterday.

AUD/USD Daily Chart

Source: OANDA fxTrade

Australia’s export prices tumble

Australia’s export price index fell 5.2% q/q in the fourth quarter, the biggest drop since the second quarter 2017. The Statistics Agency commented that the bulk of the decline was attributed to lower iron ore and coal prices during the period. Import prices rose 0.7% in Q4, even though the Australian dollar rose 4% versus the US dollar in the quarter.

China has more coronavirus cases than SARS

The number of reported coronavirus infections in China has risen to 7,711, which is more than the 5,327 cases reported during the SARS epidemic in 2002-03. However, the death toll so far is only 170, compared to 348 in China during the 2002-03 outbreak. Meanwhile, China’s Ministry of Finance has confirmed it has used a fiscal subsidy of 27.3 billion yuan ($3.9 billion) to help with virus control.

Bank of England to follow Fed

The Bank of England is widely expected to keep both its benchmark rate and asset purchase facility unchanged at today’s meeting as Britain approaches Brexit Day tomorrow. Surveys suggest that the number of committee members angling for a rate cut could increase to 3 from 2 last time.

On the European calendar, Euro-zone sentiment indicators are seen mixed this month, with the industrial confidence index improving to -8.7 from -9.3 but the services sentiment index slipping to 11.2 from 11.4. Flash German inflation readings for January are expected to show an uptick to +1.7% y/y from +1.5% the previous month.

The US economy probably expanded 2.1% q/q annualized in the fourth quarter, the same pace recorded in Q3, but with a slight risk of a lower number given the trade war that was being waged during the period. The personal consumption expenditures price index is seen rising 1.7% q/q in Q4, up from +1.5% in Q3 but still below the Fed’s 2% target level.

The full MarketPulse data calendar can be viewed at https://www.marketpulse.com/economic-events/

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