Safe-havens shine

​​​​​Today's news headlines:

  • ‘ECB officials pressure governments to ready virus response’. European Central Bank (ECB) policymakers have stated governments must hold most of the burden to revive economic growth if the coronavirus has a deeper economic impact. France’s Villeroy de Galhau and Italy’s Visco spoke at the G20 meeting in Riyadh, warning that in the absence of a ‘v-shaped’ recovery from a coronavirus-induced economic slump, fiscal policy must be used since monetary policy is already very accommodative. (Bloomberg)
  • ‘EU set for final push to toughen post-Brexit trade stance’. EU governments and the UK will both formalise their negotiating objectives ahead of upcoming trade talks with both parties taking very different approaches. The UK has emphasised it will not align with EU regulation, but the EU warns this will reduce access to the markets it can offer. On Sunday, officials said Johnson’s government was united in seeking a Canada-style free trade agreement. (Financial Times)

Counting the cost

Despite a week of solid, if not spectacular, data from the UK, EU, and US, the spread of the coronavirus has shifted market sentiment to some of the more adverse conditions we’ve seen in a while. Over the weekend, the emergence of new virus cases outside of China added fuel to ongoing concerns that the outbreak could take a decidedly more global turn. Deaths worldwide currently total 2,619, with 2,592 of those in China, however, new virus cases have been reported in South Korea, Italy and Iran. The latter two, in particular, raise the most concern because the mortality rate appears much higher than that of China, which suggests there are many undiscovered cases of infection. In response, the Dollar has remained around three-year highs, and we really can’t see much to reverse this Dollar strength in the short-term.

It’s also worth sinking our teeth into last week’s Eurozone manufacturing PMI data, as despite the index posting a one-year high, the sub-parts of this important data-point do not read so well. New orders placed at manufacturers fell for a seventeenth successive month, there was a sharp decline in export orders, and there was a marked increase in supplier delivery times. In particular, longer delivery times indicates that the outbreak of the virus is beginning to affect global supply chains and will lead to further weakness in the months to come while China scrambles to get people back to work.

Bottom line: Market moves last week were dominated by a bid-tone for safe-haven assets, and we’ve seen little over the weekend to suggest that this will be reversed in the early part of this week. US ten-year Treasury yields are approaching all-time lows, as traders bet on a resumption of Federal Reserve interest rate cuts, while demand has also increased for Euro-area debt. We’ll need some solid indications that China is returning to work to see a reversal of current risk-off conditions.


Cable’s rally on Friday failed to reach the 1.30 figure and has since dropped off, edging back to the 1.29 mark on the London open this morning. The pair’s inability to maintain above the 100-daily moving average could set a bearish tone for the pair as we begin the week. With a quiet day of data ahead for both the UK and the US, the prevailing risk-off tone caused by the rapidly spreading coronavirus outside of China could be the prime driver of intraday price action.


The currency-cross opened softer this morning as the trade-weighted Sterling Index nudged lower while the Euro equivalent ticked higher. This morning’s German IFO economic sentiment surveys may drive price action early in today’s session as the pair moves lower towards the 1.19 level.  


The Euro held above the 1.08 level after Friday’s rally following weaker-than-expected US Manufacturing and Services PMIs. This morning’s German IFO economic sentiment survey data could drive the pair early in the session, but today’s risk-off tone set by the rapidly spreading coronavirus outside of China may be the more significant driver throughout the day if the US Dollar climbs on a flight to safe-haven assets.