While the US government bond prices soared, the global stock markets have declined. At the same time, the yield on short-term loans fell, indicating a growing panic due to the spread of the coronavirus in the United States and Australia. Meanwhile, the Fed's interest rate futures market points to more than 80% probability of lowering the interest rates to a range of 0.50%-0.25% this month, and there are talks about whether the Committee will go for another early rate cut, or postpone this moment until the meeting scheduled for March 17-18 happens. Just last week, the Fed lowered the rate by half a percentage point, to the level of 1.25%. Nevertheless, considering the situation of the global markets, it is unlikely that the Committee will wait until its regular meeting to lower the rate once again.
After a good report on the US labor market, Trump said that new jobs in the US have reached a level that seemed impossible. Moreover, he once again called on the Fed to lower interest rates, and stimulate the economy in the hopes of restoring the financial markets. Judging from the situation this morning, such measures are clearly needed, in order to keep stock indexes and government bond yields from collapsing.
Such situation justifies the strengthening of the euro and the pound, as the current situation calls for a necessary response from the Federal Reserve. As a result, the market is already laying down a reduction in rates by at least another half of a percentage point.
Meanwhile, everything is good in the US labor market. According to a report from the US Department of Labor, 273,000 new jobs were created in February 2020, and the unemployment rate dropped from 3.6% to 3.5%. Moreover, compared to the same period the previous year, the average hourly earnings of Americans increased by 3.0%. The labor market is clearly ignoring the global spread of the coronavirus. Economists had expected an increase of only 175,000 in new jobs, unemployment rate at 3.5%, and annual wage growth of 3.0%.
The US foreign trade deficit in January also turned out to be better than expected. It decreased amid a reduction in trade turnover with other countries. According to the report from the US Department of Commerce, the foreign trade deficit in goods and services decreased by 6.7% compared to the previous month, amounting to 45.34 billion dollars. Economists had expected it to be $ 46.0 billion in January. Most of the deficit, however, was reduced not due to the growth of exports, but due to a drop in imports by 1.6% compared to December.
Meanwhile, as for inventories in the US wholesale trade, they declined in January of this year, falling by 0.4%, while economists had expected them to fall by 0.2%.
Although it did not affect the market in general, production orders in Germany jumped by 5.5% in January 2020, while economists forecasted it to grow by only 1.4%. Indeed, foreign orders have become the leaders of growth, but it is still very early to talk about improving the production momentum, as the report does not affect the spread of the coronavirus in the Eurozone.
Meanwhile, as for the technical picture of EUR/USD, traders are already laying down a likely decrease in US interest rates, which is confirmed by the gap and update of the EUR/USD to the level of the 15th figure in the Asian session. However, such a sharp increase in risk assets will not end well, because sooner or later, the Fed's stimulus measures will be needed, but no action has been taken in the Eurozone yet. The euro is currently overbought, and as soon as negative statistics on the Eurozone start to pour, risk assets will quickly go down. If the price breaks the nearest resistance levels of 1.1430 and 1.1490, the EUR/USD will go to the highs of 1.1540 and 1.1570. However, if the pressure on the euro returns, the support levels will be 1.1340 and 1.1280.
USD/CAD
After the collapse of oil prices, the loonie dropped as well, reaching the lows of 2015-2016. It ignored Friday's data on the state of the Canadian labor market, even though the report showed an increase in wages and in the number of jobs in February 2020. Jobs increased by 30,300, and unemployment rose from 5.5% to 5.6%. Wages have also increased by more than 4% over the past six months.
During his speech, the Bank of Canada Governor, Stephen Poloz, did not rule out further measures to support the economy, against the background of the impending crisis due to the spread of the coronavirus and the sharp drop in oil prices. Recall that just last week, the regulator lowered the key interest rate by half a percentage point, to 1.25%.
