Yesterday we saw a bloodbath in financial markets. The spread of coronavirus in Europe turned the sentiment massively negative 1-2 weeks ago, as panic set in, considering that now the virus wasn’t a Chinese problem anymore. But, the panic yesterday came from the crude Oil market. Russia didn’t agree to join OPEC on a massive cut in Oil production, by 1.5 million barrels/day, which got Saudis upset. Now both countries are threatening each other with increasing production, which would reduce the price, so it’s a chicken fight, who backs down first. But, I don’t think Russia will back down, since they already refused to join, so Saudis will just have to accept that. Although, US shale producers might take the hit from this fight.

So, crude Oil opened with a massive gap lower yesterday, more than $10. That set the panic across all financial markets and safe havens rallied higher, while stock markets tumbled lower. They continue to slide lower today, after a failed attempt to reverse higher. But, overall, the sentiment is not as negative today. By the way, we saw a bounce in Italian industrial production for January, but I think that February and particularly march will be horrible for the industrial production and services.

The European Session

• Eurozone Final Q4 2019 GDP – The Eurozone economy used to grow by around 0.6% during 2017, but the economic growth has softened since then. The economy grew by 0.4% in the first quarter of last year and it slowed further in Q2, growing by 0.3%. In Q3, the GDP was expected to grow by 0.4% again, but missed expectations and only grew by 0.2% that quarter. Q4 remained the same again. In Q1 of this year, the growth rate of the Eurozone economy was expected to tick higher to 0.3%, although the prelim Flash GDP reading for Q1 surprised us as it moved to 0.4%. The economy has slowed in Q2 and the last reading for Q2 came at 0.2%, while in Q3 it slowed further to just 0.1%, where it remained in Q4 in the first reading. Today was the second reading and it also remained at 0.1%. YoY GDP ticked higher though at 1.0% vs +0.9% prelim.
• Goldman Sachs Lowers Canadian GDP Forecasts – The global economy had a hard time in the last two years, after central banks, especially the FED had been hiking interest rates, drying up liquidity in markets, as well as from the trade war. The Canadian economy also weakened and then improved somewhat, but it seems like the economy is weakening again and it might fall into recession.

  They see the Bank of Canada cutting interest rates by 100 basis points to take rates back to the 2009-10 low of 0.25%. The CAD opened with a 300 pip bearish gap lower yesterday, after Crude Oil had crashed over the weekend, but the CAD has been holding well in the last few sessions. Although, according to these forecasts, the CAD should tumble soon.The collapse in oil prices is pushing Canada towards recession, according to Goldman Sachs. They have cut their 2020 GDP growth forecast to +0.2% from +0.7%. By quarter they see:

  • 2020 GDP forecast to drop to +0.2% from +0.7%
  • Q1 is expected at 0%
  • Q2 is expected at-0.5%
  • Q3 is expected at 0.25%
  • Q4 is expected at 1%
• Chinese President Xi Jinping Visiting Wuhan – The Chinese economy has been taking a hit due to coronavirus,which comes after a two-year long trade war. Chinese officials were trying to hide the virus outbreak in December, and later they tried to hide the effect of it on the economy. But, the recent data has showed it all. But, they are taking the situation under control. Today, the Chinese president Xi Jinping was in Wuhan for a visit today and when you see such a symbolic move – sort of like an army general taking his victory lap over a conquered land – then there is little chance that the current lock-down in Hubei will last for too long.
  • Hubei province should resume production step by step
  • Coronavirus control tasks in Hubei, Wuhan remain arduous
  • Will speed up application of effective medicines for coronavirus
  • Hubei’s economy is only hit in the short-term, long-term momentum not affected
• Italy Suspends Mortgage/Loan Payments for Individuals – The payments of mortgages will be suspended across the whole of Italy amid the coronavirus outbreak and this will apply for individuals and households. More on that here. In simple terms, this is quite a decisive and key move to alleviate pressure on households since the general population will be forced to stay home and not be able to work.

US Session

• Too Bad We Didn’t Buy Stocks of Masks producing Companies – The mask producing company 3M said earlier today that protective mask demand is to outpace supply for foreseeable future. It’s all easy in hindsight but governments should have stockpiled masks. Aside from consumer demand for many months after the end of this virus, expect governments to do that in the future, which is going to keep demand healthy at the 3M factories and elsewhere.
• Trump Tweeting on the Market Crash – No one likes the market crash and the economic disaster from coronavirus, especially not Donald Trump. Elections are coming up in the US, so here’s Trump tweeting on it, blaming mostly the FED:
  Tweet 1:

  Our pathetic, slow moving Federal Reserve, headed by Jay Powell, who raised rates too fast and lowered too late, should get our Fed Rate down to the levels of our competitor nations. They now have as much as a two point advantage, with even bigger currency help. Also, stimulate!

  Tweet 2:

  The Federal Reserve must be a leader, not a very late follower, which it has been!

• Coronavirus Cases –
  

  Country, Other	Total Cases	New Cases	Total Deaths	New Deaths	Total Recovered	Active Cases	Serious, Critical	Tot Cases/ 1M pop
  China	80,761	+26	3,136	+17	60,113	17,512	4,794	56.1
  Italy	9,172		463		724	7,985	733	151.7
  Iran	8,042	+881	291	+54	2,731	5,020		95.7
  S. Korea	7,513	+35	58	+5	247	7,208	54	146.5
  Spain	1,650	+419	35	+5	135	1,480	101	35.3
  France	1,606	+194	30		12	1,564	66	24.6
  Germany	1,307	+83	2		18	1,287	9	15.6
  USA	729	+25	27	+1	15	687	8	2.2
  Diamond Princess	696		7		245	444	32
  Japan	581	+51	10	+1	102	469	31	4.6
  Switzerland	497	+123	3	+1	3	491		57.4
  Netherlands	382	+61	4			378	1	22.3
  UK	373	+52	6	+1	18	349		5.5
  Sweden	346	+86			1	345	1	34.3
  Belgium	267	+28			1	266	2	23.0
  Norway	261	+34			1	260		48.1
  Austria	182	+51			4	178	1	20.2
  Singapore	166	+6			93	73	10	28.4
  Denmark	156	+66			1	155		26.9
  Malaysia	129	+12			24	105	2	4.0
  Hong Kong	118	+2	3		59	56	6	15.7
  Bahrain	110	+1			22	88		64.6
  Australia	103	+10	3		22	78	1	4.0
  Greece	89	+5				89	1	8.5
  Canada	77		1		8	68	1	2.0
  UAE	74	+15			12	62	2	7.5
  Iraq	71		7		15	49		1.8
  Iceland	69	+4			1	68
  Kuwait	69	+4			1	68	3	16.2
  Egypt	59		1		1	57		0.6
  Israel	58	+8			4	54	1	6.7
  India	56	+9			4	52
  Thailand	53	+3	1		33	19	1	0.8
  San Marino	51		2			49	5
  Taiwan	47	+2	1		17	29		2.0
  Lebanon	41		1	+1	1	39	3	6.0
  Czechia	41	+3				41		3.8
  Portugal	41	+2				41	1	4.0
  Finland	40	+7			1	39		7.2
  Philippines	33	+9	1		2	30	1	0.3
  Brazil	31	+6				31	1	0.1
  Vietnam	31				16	15		0.3
  Slovenia	31	+6				31		14.9
  Indonesia	27	+8			2	25		0.1
  Palestine	26	+1				26		5.1
  Romania	25	+8			5	20		1.3
  Ireland	24					24		4.9
  Qatar	24	+6				24		8.3
  Algeria	20					20		0.5
  Russia	20				3	17		0.1
  Saudi Arabia	20				1	19		0.6
  Poland	20	+3				20	2	0.5
  Oman	18				9	9		3.5
  Pakistan	18	+2			2	16		0.1
  Argentina	17		1			16		0.4
  Chile	17	+4				17		0.9
  Ecuador	15					15	1	0.9
  Georgia	15					15	1	3.8
  Croatia	14	+1				14		3.4
  Estonia	13	+3				13		9.8
  Costa Rica	13	+4				13	1	2.6
  Hungary	12	+3				12		1.2
  Azerbaijan	11	+2				11		1.1
  Peru	11	+2				11		0.3
  Macao	10				10	0
  Albania	10	+4				10		3.5
  Belarus	9	+3			3	6		1.0
  Latvia	8	+2			1	7		4.2
  North Macedonia	7	+2				7		3.4

Trades in Sight

Bullish USD/CAD

• The trend has turned bullish again
• The previous high has been broken
• The 20 SMA is acting as support today
• The war continues between Saudi Arabia and Russia

Buyers bought the retrace to the 20 SMA today

USD/CAD has turned really bullish lately. Forecasts about GDP growth for the Canadian economy have been revised down and the production war between Russia and Saudi Arabia is hurting crude Oil. The CAD is closely connected to Oil prices, so that has turned the CAD really bearish too, sending USD/CAD higher.

Yesterday crude Oil opened with a massive bearish gap more than $10 lower and USD/CAD surged around 350 pips. That comes at a time when the USD is also pretty weak, due to the prospects of the FED make a large 75 bps cut next week, cutting interest rates close to 0% in total in the coming months. Earlier today we saw retrace lower, but the retrace ended at the 20 SMA (grey). This shows that the buying pressure is strong. USD/CAD bounced off the 20 SMA and is around 150 pips higher, challenging 1.38 now. I think that the real target is 1.40 now, which won’t be too far if the fight between Russia and Saudi Arabia continues.

In Conclusion

Today markets seem calmer after the panic of the crash in the Oil market yesterday. Although, the CAD continues to slide, despite crude Oil having steadied today. The weakness we have seen in the USD in recent days seems over now, but it might not last, as coronavirus spreads in the US as well.