Markets are now in official correction territory, as equities meltdown globally and panic spreads globally, with the coronavirus. Infection rates a rising globally and now outpace the infection rate at the genesis, China, if the authorities are to be believed. Markets rarely lie.
Corporate profits are being downgraded rapidly and economic data releases are being largely ignored, as the majority are historical and do not consider or include the impact of the coronavirus crises. US 10 year Bond Yields hit 1.24%, smashing the record lows set only a day or so before. The VIX volatility index spiked up to 32.79, reflecting full on panic invading global markets. This is now very serious and size of the disaster cannot even be properly assessed.
The fall in US Bond Yields reflect the pressure the Federal Reserve will be under, to cut interest rates, blowing out theories of safe-haven status. The ECB, BoJ and PBoC are already 'maxed out', operating in a negative interest rate environment, although a few chairs could be shuffled on the decks? The Fed has maintained healthy premiums to global interest rates, thereby allowing much more latitude for action, which may explain the downside speculation. This has forced the Dollar lower, allowed currencies to retain some semblance of stability.
The GBP fell back below 1.2900, while the EUR surprisingly rallied towards 1.1000, confounding many. The EUR is probably experiencing a spike due to closing out of massive short positions held, rather than any positive arguments. The trade exposed commodity currencies have been punished, but the softer reserve has allowed the AUD to rise to 0.6580, while the NZD broke back above 0.6300, despite weak Business Confidence numbers.
The global spread of the 'coronavirus' and the impact on markets will continue to dominate the macro narrative. Economic data releases are being largely ignored, as they do not consider the impact of the virus crises, as negatives drive markets.