Risk Rebounds – Aussie Leads the Way

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Market Drivers February 4, 2020
RBA Holds – Aussie rebounds
Equities rocket across the board
Nikkei 0.49% Dax 1.09%
UST 10Y 1.58%
Oil $50/bbl
Gold $1568/oz
BTCUSD $9194

Europe and Asia:
AUD RBA Keeps rates on hold
GBP PMI 48.4 vs. 46.6

North America:
USD Consumetr Confidence 10:00

A raging rally in risk characterized today’s markets as the reversal in Shanghai index aided by yet more liquidity measures by PBOC helped lead a strong move in equities elsewhere with US indices pointing to a greater than 1% gain on the open.

The coronavirus continues to ravage mainland China unabated with confirmed cases exceeding the 20,000 mark while deaths have now climbed above 425. However, as we noted earlier, “For now global markets view this as “China only” issue. Investors won’t panic unless the deaths start to show up ex-China especially in the West as home country bias pervades.”

Meanwhile, in Australia, the RBA kept its rates on hold noting that brush fires and coronavirus will put a temporary damper on growth. The central bank is clearly keeping its powder dry preferring to use monetary policy tools only when it’s absolutely necessary. Such posture makes sense given the small amount of room RBA has to work with before it reaches zero bound. Australian authorities are clearly mindful of the liquidity trap seen elsewhere in the OECD world and are cautious to change policy until economic conditions deteriorate further. It’s likely RBA will remain neutral as long AUD growth remains positive.

In North America today the calendar remains quiet so FX markets will likely take their cue from equities. Yesterday’s better than expected ISM Manufacturing data suggested that US growth remains on track and has turned investor sentiment positive. If the rest of the week confirms that thesis there is no reason why equities can’t retest all-time highs despite the coronavirus fears as the liquidity-driven rally continues to obliterate shorts in its path.

Boris Schlossberg
Managing Director

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