By Wichard Cilliers, Head of Dealing, TreasuryONE
Fears that the Coronavirus could push the global economy into recession saw markets tumble on Friday. All US equity markets were down over 3% at one stage on Friday. US Fed chair Jerome Powell then released a statement stating that the central bank is “closely monitoring” the coronavirus epidemic. He added that “We will use our tools and act as appropriate to support the economy.” This caused US equity markets turned a bit with the Nasdaq closing up 0.01% but the DOW and S&P 500 still ended in the red. Gold fell from a high of $1 649.00 to close at $1 584.00, the reason for the big fall in the price of gold, is when the market starts to panic, the market runs to US treasuries, the dollar and the yen. Gold gets sold off to get cash to cover margin calls in order for geared positions not be stopped out in the rest of the market space. Longer term the safe haven buying for gold will continue as the market gets over the initial panic. We have already seen gold bounce of $1,570 seen on Friday to trade back above $1,600. One can see from the graph the correlation between the sell of in gold (orange) and rush back into the yen (pink).
The Rand weakened to R15.82 overnight one stage but recovered to close at R15.66. In the early hours of the morning the currency spiked to R15.89 but is currently quoted at R15.62.
See below USDZAR for 2020 so far.
China’s official Manufacturing Purchasing Managers’ Index for February tumbled down to 35.7 points, the lowest on record and well beneath 45 expected. The Non-Manufacturing PMI also plummeted to a historic low of 29.6. Still the Yuan is trading below the 7.00 level and equity markets in China and the rest of Asia is all trading in the green this morning, with the Nikkei up 1.13%, Hang Seng up 0.86% and the Shanghai up 3.09%.
The US confirmed the second fatality from the virus while Italy reported a 50% rise in confirmed cases. Markets are now anticipating a 50-basis point rate cut by the Fed this month and both US Treasury yields and the Dollar have fallen. The 10y yield is at 1.077% and the 30y at 1.647% while the Dollar is trading at 1.1052 against the Euro and 108.10 against the Yen.
We will need to closely monitor the corona virus and the news surrounding the spread. Also, we need to see what the world is possibly going to do as Italy has announced a €3.6bio stimulus package to tackle the spread of the virus. Everyone will certainly watch the US with bated breath. For now the ZAR will continue on its rollercoaster ride as we get beaten around in this time of uncertainty.