Italian coronavirus cases continued to increase sharply with an increase of close to 800 on the day to over 3,850 with the death toll near 150. There were further concerns over heavy damage to the Italian economy which unsettled the Euro.
There was no evidence at this stage of a significant shift in the ECB thinking with resistance to interest rate cuts tending to protect the single currency, although dollar moves were the principal component during the day.
US jobless claims declined slightly to 216,000 in the latest week from 219,000 previously. Challenger job cuts declined to below 57,000 for February and declined 4% for the first 2 months of 2020, although job cuts in the technology sector increased sharply. The data releases overall showed no impact from the coronavirus outbreak.
Interest rate expectations, however, continued to move sharply as fears over the US impact intensified. Futures markets shifted rapidly to indicate a 100% chance that the Fed would cut rates again by a further 0.50% at the March 18 policy meeting. Lower yields and expectations of further rate cuts continued to sap dollar support with the currency index at fresh 8-week lows. The Euro strengthened to 2020 highs around 1.1225 and held a firm tone on Friday as a lack of yield continued to undermine the dollar. The latest monthly labour-market report will be released on Friday and the coronavirus impact should be marginal. Any weakness would reinforce underlying concerns over the outlook and maintain pressure for further interest rate cuts, although volatility will remain high with position adjustment likely and short covering could be a feature.
US equity futures remained in negative territory ahead of the New York open with Treasuries also holding a firm tone. There was no change in underlying tone after the Wall Street open as global growth fears dominated market sentiment.
There were fears that the number of US coronavirus cases would increase very rapidly once there was the ability to test large numbers which undermined confidence in the outlook and weakened dollar sentiment.
The S&P 500 index recorded a decline of over 2.5% at the European close while Treasuries continued to gain ground with the 10-year yield declining to fresh record lows. As equities remained under pressure there were lows near 106.00. Asian equities also declined sharply as fears over the global economic impact of coronavirus increased. US futures retreated further which reinforced concerns and the dollar declined to fresh 5-month lows around 105.75 with the 10-year yield below 0.85% before a tentative recovery with some nervousness over potential Bank of Japan intervention to stabilise markets.
Sterling maintained a firm tone during the European session on Thursday with further support from expectations that the Bank of England would resist an emergency cut in interest rates. The UK currency moved above the 1.2900 level against the dollar on wider US losses, although it was unable to sustain an advance against the Euro. Out-going Bank of England Governor Carney reiterated that the bank will take all necessary steps to support the economy and financial system. Actions, including monetary policy instruments, would also be co-ordinated with the Treasury to ensure maximum effectiveness.
EU Chief Negotiator Barnier stated that difficulties surrounding the end of transition were being under-estimated, but a good agreement was possible even with very, very difficult disagreements. As the US dollar remained under pressure, Sterling pushed above 1.2950 and held steady on Friday with the Euro near 0.8670 as risk conditions dominated.
The Swiss franc maintained a firm tone on Thursday as global equity markets retreated once again amid global unease.
The Euro dipped below 1.0650 while the dollar was the main focus of attention as it dipped to 23-month lows below 0.9500. The break below this level triggered further selling pressure, especially as equity markets continued to lose ground. The franc advanced further on Friday with the Euro dipping to near 1.0600, a level which appears to have been defended by the National Bank, while the dollar traded at fresh 23-month lows below 0.9450.