Strong market fluctuations at the beginning of the week. Central banks are announcing a stimulation, the run on the US Treasury bonds is at its best, and strong falls in profitability weaken the dollar. The zloty's volatility range increased, but the globally weaker dollar protects the Polish currency against depreciation.
The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.
- 4:00 p.m.: PMI (according to ISM) of the US industrial sector in February (estimates: 50.5 points).
On Monday, from the first minute of trading at night there was strong volatility observed in the markets. Published on Saturday data on February PMI activity indexes in China turned out to be disastrous: the index for services fell to 29.6 points (50.5 pts. were expected), and for the industry to 35.7 points (45.0 pts. were expected). Futures on market indexes opened up with several-percent declines, but as the hours passed, the scale of the decline was decreasing, and there were even strong increases.
Coronavirus does not give a chance for a quick recovery
The beginning of the session in Europe was positive. The main indexes gained just over 2%. However, this movement was also reversed. An hour in the afternoon, on the main markets, there were almost 2% decreases (4% in the case of Italy). Strong sentiment changes are caused primarily by hopes that central banks will provide more monetary stimulation (lower interest rates and/or increased asset purchase programmes), and secondly by reports on the coronavirus.
This second factor causes concern among market participants due to the potential negative impact on the global economy. Just a week or two ago, it was widely expected that the impact of the virus would be transitory and would be mainly concentrated in the first quarter, with a rebound in the second. This scenario is most likely outdated, something demonstrated by the persistently weak market sentiment. A rebound in Q3 now seems more realistic.
The strong declines seen on European markets this afternoon are linked to further capital flows towards Treasury bonds. Increased demand for bonds has contributed to the new record low yields of 10-year US bonds. The 1.03 level is already close to the key limit of 1%. It has already been exceeded by the "two-year" yields (about 0.73%).
EUR/USD the highest since one and a half months
The continuation of the significant fall in the cost of US debt continues to exert strong supply pressure on the dollar. The EUR/USD quotations increased in the early afternoon to around 1.1128, reaching their highest level in one and a half months (January 17). The globally weaker dollar, despite the domination of strong risk aversion, helps the zloty. The EUR/PLN exchange rate was in the range of approx. 4.3080-4.3350 (about 4.33 in an hour in the afternoon), while the USD/PLN exchange rate was in the slightly wider range of approx. 3.8840-3.9260 (about 3.90 an hour in the afternoon).
Today there will be an important publication from the USA. ISM's PMI index of the US industrial sector in February will be published. After weak data of a slightly less significant analogous index produced by IHS Markit, the market's attention may be largely focused on this publication. Around this publication, a significant increase in the volatility of the dollar can be expected, given its weaker condition due to the Federal Reserve's interest rate cuts priced by the market.