The actions of the White House as response to the spread of the coronavirus indicate the seriousness of the situation. However, it is possible that the US President just wants to achieve an ultra-soft monetary policy from the Fed, and stimulate the economy by maintaining growth rates in the second half of the year, for when the US presidential elections will be held.
Yesterday, the US Treasury Secretary, Steven Mnuchin, presented a $1 trillion stimulus package for Republican senators to consider, saying that this is not the time to worry about deficits. It includes an initial $250 billion direct payments to Americans, where if necessary, the administration will decide if they should give additional payments. It is expected that on this issue, Trump's administration will finalize a legislative framework to combat the economic consequences of the coronavirus pandemic.
At the same time, the Bank of England and the Ministry of Finance announced a program that would finance companies most affected by the coronavirus, where an additional guarantee for business loans in the amount of £ 330 billion will be provided. Moreover, Finance Minister Rishi Sunak announced that tax breaks for small companies are extended, and a £ 20 billion tax exemption, as well as cash assistance program, will be given. Lenders will also be required to release victims of the virus from mortgage payments for 3 months.
In any case, it is good to see that governments, along with central banks, are not sitting idly, and are taking the necessary measures to offset the economic consequences of the spread of COVID-19. This gives out hope that economies will recover, as soon as the epidemic has declined.
Meanwhile, yesterday's weak report on retail sales in the US only confirmed the significant problems that the economy may face during the spread of the coronavirus. However, note the indicator may change significantly in March, as there was a sharp spike in purchases amid the panic over the virus.
According to the report of the US Department of Commerce, retail sales fell by 0.5% in February 2020, while economists had forecasted it to grow by 0.1%. Note that in February, the coronavirus has not yet spread much in the US, so the data did not take into account all the panic that is now happening in stores and shopping centers. Most likely, the subdued February demand was directly related to the sharp fall in financial markets, which negatively affected household spending. For example, car sales fell by 0.9% compared to January, electronics sales fell by 1.4%, and grocery sales fell by 0.1%.
According to the Fed, industrial production in the US increased by 0.6% in February, while economists expected it to increase by 0.4%. Even though this sharp increase is a positive news, many traders ignored it, as the active spread of the coronavirus will surely affect the results of this indicator during the month of March. Meanwhile, the manufacturing output, as well as production in the utilities sector, grew by 0.1% compared to January, and production in the mining sector declined by 1.5%. Capacity utilization also increased to 77%.
The decline in the confidence of American home builders did not significantly affect the market. According to a report from the National Association of Home Builders, the calculated housing market index fell from 74 points in February to 72 points in March 2020. Economists had expected the index to reach 74 points in March, but the survey was conducted before March 4, so the final figure does not yet take into account the large fall that the stock market experienced, as well as the growing consequences that the economy experiences due to the spread of the coronavirus.
Yesterday, Loretta Mester, President of the Federal reserve Bank of Cleveland, spoke against the sharp reduction in interest rates that the Committee did last Sunday. She said that lowering rates to zero during a period of instability in the markets was a mistake, as a more moderate rate cut would have given space for further action. Mester also said that in case of continued tension in the markets, crisis lending tools should be reactivated.
As for the technical picture of the EUR/USD pair, there is a fairly high chance that pressure will remain on the risky assets. Until the peak of the spread of the coronavirus is reached, euro will not be able to strengthen. Nevertheless, a break in the support of 1.0990 will increase the pressure on the pair, which will lead to the decline in the area of the lows of 1.0900 and 1.0860. In the case of an upward correction, the movement will be limited to the highs around 1.1070 and 1.1160.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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