Risk-Off; SVB Turmoil Roils Markets; “Just Another Manic Monday”

Fed Moves to Stop Contagion; Treasuries Soar, Yields, DXY Tumble

Summary:

Financial markets braced themselves for a choppy start on Monday. US regulators and the Federal Reserve discussed measures that would support other financials with direct exposure to Silicon Valley Bank. SVB, was shut down on Friday as customers withdrew their deposits.

US Treasury Secretary Janet Yellen said that the department was working “to address the situation in a timely way.” The shutdown of the SVB marked the largest bank failure in the US since 2008. Other banks also suffered on the SVB collapse.

Bond prices surged while yields plunged. The US 10-year treasury yield dropped a whopping 20 basis points to 3.70%. Wall Street stocks slumped. The US S&P 500 lost 1.4% to 3,860 (3,930 Friday).

On Friday, the US Payrolls report disappointed as the Unemployment Rate jumped to 3.6% from a previous 3.4%, which was what most economists had forecast. The Greenback fell overall.

Against the haven sought Swiss Franc, the Dollar (USD/CHF) plummeted 1.65% to 0.9210 from 0.9360. The Greenback tumbled against the Japanese Yen to 135.02 (136.15 Friday).

However, risk leader the Australian Dollar (AUD/USD) dipped to 0.6580 (0.6595) on rising contagion fears. Against the Asian and EMFX, the Dollar finished lower. USD/CNH fell to 6.94 from 6.97. The USD/SGD pair eased to 1.3502 from 1.3520.

The Dollar Index (USD/DXY), a popular measure of the Greenback’s value against a basket of six major currencies, dropped to 104.22 from 104.90, down 0.5%.

Sterling (GBP/USD) rebounded to 1.2035 (1.1915). UK monthly GDP beat forecasts, climbing to 0.3% against 0.1%. The Euro (EUR/USD) gained 0.43% to 1.0640 from Friday’s 1.0580.

Economic data released Friday saw the US Non-Farm Payrolls climb to 311,000, beating forecasts at 224,000 but lower than January’s 517,000. Wages dipped to 0.2% from a previous 0.3%.

The Bank of Japan kept its Policy Rate unchanged at -0.10%. Canada’s Employment Change climbed to 21,800, beating expectations at 8,500. Canada’s Jobless Rate was unchanged at 5%. China’s Annual CPI eased to 1.0% from a previous 2.1%, and forecasts at 1.9%.

• USD/CHF – Risk off associated with the collapse of Silicon Valley Bank lifted the Swiss Franc against the Greenback. At the close of trade on Friday, the USD/CHF pair was at 0.9210 against Friday’s open at 0.9360. In volatile trade, the overnight low reached was at 0.9174.
• AUD/USD – The Australian Dollar settled lower against the Greenback as risk aversion rose. In late New York on Friday, the AUD/USD pair settled at 0.6580 from Friday’s 0.6595. Overnight low traded was at 0.6564. Despite broad-based US Dollar weakness, risk aversion weighed on the Aussie Battler.
• GBP/USD – The British Pound rebounded against the Greenback, settling at 1.2035 in late New York, against Friday’s 1.1915. Overnight, Sterling soared to a peak at 1.2113 in choppy trade. The low recorded for the GBP/USD pair was at 1.1907.
• USD/JPY – The fall in US bond yields as well as risk off weighed on this currency pair. At the close of trade in New York, the Greenback settled at 135.02 Japanese Yen (136.15). In volatile trade of its own, the low in USD/JPY was at 134.11. The high recorded was at 136.99.

On the Lookout:

Expect Asia to have a choppy start with liquidity thinner than normal while spreads should widen a tad. Markets will continue to monitor news releases, of which the latest was that the Fed would hold a closed-door meeting. The US central bank said that they would “review and determine” the advance ang discount rates to be charged by the Federal Reserve banks.”

Economic data releases today are light and start off with New Zealand’s February Services PSI (Performance of Services Index), forecast at 54.0 from a previous 54.5 – ACY Finlogix. Japan follows next with its BSI Large Manufacturing Index (q/q f/c -2.5% from a previous -3.6%). The US releases its Consumer Inflation Expectations for February (f/c 4.8% from 5% - ACY Finlogix).

Tomorrow (Tuesday) sees the release of the UK Employment report as well as the US February Headline and Core Inflation Rate. On Wednesday, China releases its Annual Industrial Production, Fixed Asset Investment and Unemployment rate. The US also releases its February PPI and Retail Sales reports. A busy data week in store for markets.

Trading Perspective:

Risk-off will dominate trading at the onset of Asia today. Markets will monitor the regulators moves to contain the Silicon Valley Bank collapse.

Haven currencies led by the Swiss Franc and Japanese Yen will maintain their bid against the Greenback. Risk aversion will continue to weigh on the Australian Dollar and other Asian and EMFX. The rise in the US Unemployment Rate to 3.6% from 3.4% will also weigh on the Greenback.

• USD/CHF – The biggest mover over the weekend as risk aversion saw a move into the haven Swiss Franc from the Greenback. On Friday, the Dollar plunged to an overnight low at 0.9174 from Friday’s open at 0.9360, settling in late New York at 0.9210. Look for immediate support at 0.9175 to contain fresh Dollar selling. The next support level lies at 0.9140 followed by 0.9100. Immediate resistance can be found at 0.9250 and 0.9280. Look for choppy trade in a likely range today of 0.9150-0.9250. Sell USD/CHF rallies for now.
• AUD/USD – Against the trend, risk leader the Australian Dollar dipped against the Greenback, closing at 0.6580 against 0.6595 on Friday. Immediate support can be found at 0.6560 (overnight low traded was at 0.6564). The next support level lies at 0.6530 and 0.6500. Immediate resistance is found at 0.6600, 0.6640 and 0.6680. Look for further choppy trade in the Aussie, likely range today between 0.6550-0.6650. Look to sell rallies.
• GBP/USD – Sterling soared against the Greenback supported by stronger than expected GDP data and an overall weaker US Dollar. The GBP/USD pair closed at 1.2035. Immediate resistance today is found at 1.2080 followed by 1.2110 (overnight high traded was at 1.2113). Immediate support lies at 1.2000, 1.1970 and 1.1940. Look for another roller coaster ride in the British Pound, likely range 1.1920-1.2070.
• USD/JPY – The Greenback tumbled 1.1% lower against the Japanese Yen to finish at 135.02 from Friday’s 136.15. The combination of risk-off and rise in the US Jobless rate weighed on this currency pair. Immediate support lies at 134.70 followed by 134.40 and 134.00. On the topside, look for immediate resistance at 135.40, 135.80 and 136.20 to cap. Expect a volatile start to the USD/JPY pair today. Likely range 134.20-136.20. Prefer to sell rallies.

“Just another manic Monday”, the popular 80’s tune from the Bangles is playing in my head just now. Get ready for a choppy start to markets today.

Happy trading all, have a top week ahead.

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