Morning Commentary: Glimmer of Hope

Foreign Exchange - Morning Commentary
Glimmer of Hope
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
Risk assets around the world are rallying on positive economic data as well as reports of a “significant breakthrough” in the race to find a vaccine for the coronavirus outbreak. 

Scientists in both the UK and China have signaled progress towards a vaccine to combat the novel coronavirus.  In the UK, scientists are reportedly ready to start testing the vaccine as early as next week.  In China, researches from the Wuhan Institute of Virology have applied for a national patent on an experimental Gilead Sciences’ drug that they believe could fight the novel coronavirus. 

What will eventually happen remains to be seen as scientists in both countries have yet to prove the effectiveness of their vaccines.  Gilead’s experimental drug isn’t licensed or approved anywhere in the world but is being rushed into trial after showing early signs of effectiveness.  Moreover, the patent application by Chinese researchers revives longstanding concerns about China’s respect for intellectual property rights.  However, these are all issues for another day.  For now, markets are in rally mode as they focus on the possibility of a breakthrough.  It should be noted that a vaccine is likely too late for the current outbreak but would be critical should a second wave of come through.
  • The number of confirmed cases and deaths from the coronavirus outbreak continues to rise.  Hong Kong authorities have announced that they will quarantine travelers coming from mainland China.  Additionally, United and American Airlines have suspended flights to Hong Kong.
  • The coronavirus crisis will likely be a convenient excuse for both sides to under deliver on the US-China Phase 1 deal.  As we have indicated in prior commentaries, some of the purchase targets were already optimistic and failure to reach these targets will likely be explained away by the coronavirus’ economic impact.
  • OPEC+ officials are continuing talks in Vienna for a second day as they decide whether or not to increase production cuts.  An agreement for meaningful cuts may be difficult to achieve given that the economic impact remains unclear in addition to Russia’s opposition. 
  • Eurozone final PMIs surprised to the upside with services coming in at 52.5 vs. expectations for a 52.2 print.  Upside surprises came from Germany and Italy with Spain and France disappointing. 
  • The US ADP jobs report beat expectations at 291K jobs versus expectations for 157K jobs.  Additionally, Services PMI as well as the ISM non-manufacturing index also beat expectations.   
  • UK services PMI data also beat expectations at 53.9 versus expectations for a 52.9 print.
  • Canada’s Trade Balance came in at -0.37 billion versus expectations for a -0.61 billion print.  However, the prior figure was revised down significantly. 
  • The Bank of Thailand surprised markets by cutting rates 25 bps to 1.00% as the negative impact from the coronavirus on tourism likely swayed the board.  The baht initially sold off but has since strengthened on news of a possible vaccine breakthrough. 
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