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Australian indices traded lower for the seventh consecutive day on Monday, 02 March 2020. The S&P/ASX 200 index fell below 6300 levels during the early hours on Monday morning, but the benchmark index started recovering post 12 PM AEDT, ending the day at 6,391.5, down by 49.7 points.
Some of the sub-sector indices traded on the greener side, including S&P/ASX 200 Consumer Staples (Sector), S&P/ASX 200 Energy (Sector), and S&P/ASX 200 Information Technology (Sector).
Likewise, the all new technology barometer - S&P/ASX All Technology Index traded higher by 0.36% or 6.5 points at 1,814.0. Among the top gainers in S&P/ASX 200 index were WiseTech Global (ASX:WTC), which closed the day’s trade at $17.02, up by 12.72%, followed by PolyNovo Limited (ASX:PNV), Appen Limited (ASX: APX) and Blackmore Limited (ASX:BKL).
Shares of Fortescue Metals (ASX:FMG) lost the most with a fall of 9.03% at $9.17, followed by Resolute Mining Limited (ASX: RSG) and Regis Resource (ASX:RRL).
Source: ASX
Across the globe, number of coronavirus cases has intensified with Australia suffering its first death due to the disease. In Europe, the virus is spreading fast and the infected toll in countries continue to be on the rise.
According to Johns Hopkins CSSE, as of today, there are 1,694 Covid-19 cases in Italy with a death toll of 34. Iran has total confirmed cases of 978, with a death toll of 54 people.
In France, confirmed cases have reached 130, Spain has 84 cases, Switzerland has 27, Germany has 130, UK has 36 cases and Kuwait has 45 cases. In the west, the US has 86 confirmed cases with 2 deaths recorded. Canada has 24 cases of Covid-19, while Mexico has 5 confirmed cases and Brazil has confirmed two cases.
AUD has continued its falling run and is now trending closer to the levels recorded in the Great Financial Crisis when AUD/USD spot contracts were traded below $0.65/USD.
Since the start of the year, the concern around bushfires, droughts, floods, economic turnaround, softening commodity prices, weakening Chinese output, and lately revamped interest rate cut expectations have propelled the Australian Dollar to a lower level against major G10 rates.
Additional incoming economic data is set to release this week, which may further act as a trigger for currency traders. This week’s numbers include Q4 GDP numbers, current account, retail, dwelling approvals as well as trade balance.
The AU Sovereign bond yields continued to remain pressurised, as the interest rate cut expectations intensified. The yield on the AU 10-year bond closed the day at 0.798%, after opening the day at 0.688% and touching a low of 0.673% during the day.
Chinese PMI data indicates first-quarter GDP hit
In China, the manufacturing activity numbers have been out for February, indicating a steepest contraction ever recorded in the country’s official Purchasing Managers’ Index (PMI). China’s PMI was at 35.7 in February, down from 50 in January 2020.
The coronavirus outbreak had created a large-scale lockdown across the country while extending the Lunar New Year holidays. Also, there was a severe drop in the non-manufacturing PMI, which tanked to 29.6 from 54.1 in the previous month.
The sub-indices of the official manufacturing PMI, including imports sub-index dropped to 31.9 from 49 and export order sub-index was down to 28.7 from 48.7 in January. The manufacturing production sub-index was recorded at 27.8 from 51.3 in January.
Clearly, the PMI numbers from the Chinese official body indicate the level of disruptions faced by the Chinese companies, including supply chain, transportation, labour supply and order delays, especially in the manufacturing sector.
The Chinese National Bureau of Statistics noted that the automotive and specialised equipment industries were the most impacted, but there was substantial damage in the non-manufacturing space as the demand for catering, accommodation, travel, tourism, and leisure fell severely.
Given the large-scale lockdown across the country, the GDP growth is likely to moderate in the first quarter of the year and is expected to break further records of the lowest growth rate, as the 6% growth recorded in the fourth quarter was weakest in the last 30-year period.
Chinese companies are finding it difficult to source the labour, as travel restrictions are blocking people to return back to work after the Lunar New Year holidays were extended to tackle the coronavirus outbreak.
Australian PMI in contraction
The Australian Industry Group’s performance indicators for the country also came out for the month of February. The PMI was down by 1.1 points at 44.3 points, on a seasonally adjusted basis, thereby marking a fourth consecutive month of contraction.
Except for food & beverages, indices for all manufacturing sectors recorded contraction, with other sub-indices, including production, sales, new orders, and exports down during the month.
Street has turned dovish, expects rate cut tomorrow
Australian economists have brought forward their interest-rate cut expectations to as close as tomorrow, when the Reserve Bank of Australia sits to decide on the policy rate. In a wild move, some of the market participants expect a cash rate cut of 50 basis points, which would mean a cash rate at 0.25%.
Not very long ago, the interest rate cut expectations were pushed out to as far as November when coronavirus was not in the centre stage and firming up inflation helped to recede the cash rate cut expectations.
An interest rate cut tomorrow would be defining factor for AUD FX pairs, as a potential cash rate cut is likely to send AUD to further lower levels on narrowing interest-rate differentials against the respective currency.
News had emerged in the media today, noting that Prime Minister and Treasurer held talks with RBA’s Governor Philip Lowe and Deputy Governor Guy Debelle. These talks were held to discuss the implications of coronavirus. It was noted that the government’s response plan would be announced soon.
