"The Markets Are Really Panicking": VIX Explodes, Markets Crash In Worst Week Since Lehman

Friday's market performance has traditionally been the weakest, even during the meltup phase ahead of the recent coronacrash, and as such it will probably not come as a surprise that today's overnight rout which followed the biggest 6-day correction from a peak for the S&P on record...

... has accelerated only this time without even a casual attempt to buy the dip, with the S&P plunge accelerating, and briefly dipping below 2,800. As shown in the chart below, the S&P is now down over 13% from its Friday high, and the selloff shows no signs of abating as both man and machine is now openly dumping risk as the coronavirus epidemic gets worse by the day.

Futures on American gauges were all down at least 0.8%, a more modest drop than elsewhere in the world, but still suggesting U.S. stocks will retreat for a seventh straight session, cementing the worst week since the global financial crisis. Wall Street shares plunged 4.4% on Thursday alone, the largest fall since the August 2011 US downgrade. Futures pointed to a modest 1% drop later, but the S&P 500 has lost 12% since hitting a record high just nine days ago, putting it in so-called correction territory

"Investors are trying to price in the worst case scenario and the biggest risk is what happens now in the United States and other major countries outside of Asia," said SEI Investments Head of Asian Equities John Lau. "These are highly uncertainty times, no one really knows the answer and the markets are really panicking."

And as the accelerating global coronavirus panic sent world stock markets skidding again on Friday into a angry sea of red...

...compounding their worst crash since the 2008 global financial crisis and pushing the week’s wipeout in value terms to $5 trillion. MSCI’s all country world index, which tracks almost 50 countries, was down more than 1% ahead of U.S. trading and almost 10% for the week - the worst since October 2008.

... the VIX exploded, with equity volatility soaring briefly above 47, before stabiling around 41; it was below 15 a week ago, surpassing both the late 2018 selloff, the Feb 2018 Volmageddon, the Aug 2015 ETFlash crash, and the highest since the US downgrade in 2011.

The rout showed no signs of slowing as Europe’s main markets slumped 3-5%, with the Stoxx Europe 600 Index paring a tumble of 4.5%, though it was still headed for the worst weekly performance since 2008. All 19 sectors gauge dropped more than 1.8%. Europe’s airlines and travel stocks have plunged 18% in their worst week since the 2001 9/11 attacks in the United States.

The index, which measures expected swings in U.S. shares in the next 30 days, typically shoots up to around 50 when bear market selling hits its heaviest and approached almost 90 during the 2008-09 financial crisis.

Earlier in the session, Asian benchmarks from Tokyo and Seoul to Shanghai and Sydney posted drops of more than 3% as Asian stocks suffered the steepest one-day decline in 16 months, with the materials and energy sectors falling the most. The MSCI Asia index ex-Japan shed 2.6%. Japan’s Nikkei slumped 3.7% on rising fears the Olympics planned in July-August may be called off due to the coronavirus. All markets in the region were down, with China's Shanghai Composite dropping 3.7%, as the global rout knocked mainland Chinese shares, which have been relatively well supported this month. The CSI300 index of Shanghai and Shenzhen shares dropped 3.5%, to bring its weekly loss to 5% and the worst since April. Trading volume for MSCI Asia Pacific Index members was 36% above the monthly average for this time of the day.

Hopes that the epidemic that started in China would be over in months and that economic activity would quickly return to normal have been shattered this week as the number of international cases spiralled. As such, focus was on the number of international coronavirus cases, where there was no sign that the virus spread is slowing with cases in South Korea topping 2,300.

“The coronavirus now looks like a pandemic. Markets can cope even if there is big risk as long as we can see the end of the tunnel,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities. “But at the moment, no one can tell how long this will last and how severe it will get.”

New cases continue to appear outside of China, with New Zealand and Lithuania reporting their first infections. The head of the World Health Organization said the coronavirus has the potential to become a pandemic and is at a “decisive” stage. Land Co and AltPlus led declines in the Topix. The Shanghai Composite Index retreated 3.7%, with Shenyang Jinbei Automotive and Anhui Tongfeng Electronics posting the biggest slides.

Disruptions to international travel and supply chains, school closures and cancellations of major events have all blackened the outlook for a world economy that was already struggling with the U.S.-China trade war fallout.

The ongoing dive for safety sent yields on 10Y Treasury bonds to fresh record lows, dropping as low as 1.1550 in frenzied European trading% before staging a modest rebound. It last stood at 1.2143%. That is over 20bps below the three-month bill yield of 1.43%, deepening the inversion of the yield curve, and virtually assuring a recession.

Yields on bunds also dropped, while European peripheral bonds sold off. Japan's 10-year government bond yield headed for its largest weekly decline since January 2016 and the yen rallied by as much as 1% against the greenback to touch 108.51

In commodities, oil prices languished at their lowest in more than a year having plunged 12% this week - the worst since 2016 - while all the major industrial metals have dropped between 3% and 6%.  Expectations the Fed will cut interest rates to cushion the blow are rising in money markets. Analysts say Fed funds futures are now pricing in about a 75% chance of a 25 basis point cut at the central bank’s March 17-18 meeting, with some traders betting on 2 rate cuts as soon as next month as Kevin Warsh tells CNBC this morning a Fed emergency announcement on Sunday may not be a bad idea. The European Central Bank historically lags the Fed but it is now seen cutting by another 10 basis points by June.

In FX, the dollar traded mixed and the euro continued its advance on the back of short covering; the Swiss franc touched its strongest level against the U.S. currency since September 2018. The pound fell against the euro and money markets priced in a Bank of England interest-rate cut for May on concern the coronavirus could trigger a growth downgrade for the U.K. The kiwi slumped to its weakest since October on increasing expectations for the Reserve Bank of New Zealand to ease monetary policy; New Zealand confirmed its case of coronavirus on Friday, adding to a spate of new infections outside China

Looking at the day ahead, we have a raft of data releases out: the US will be releasing preliminary wholesale inventories for January, as well as January’s personal income, personal spending and the PCE deflator. In addition to this, we’ll get the February MNI Chicago PMI, the final February University of Michigan consumer sentiment index, and Canada’s GDP for December. From central banks, we’ll hear from Bundesbank President Weidmann, the Fed’s Bullard, and the BoE’s Haldane and Cunliffe. Foot Locker and Wayfair are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures down 1.1% to 2,921.75
  • STOXX Europe 600 down 4.5% to 371.80
  • MXAP down 2.5% to 155.42
  • MXAPJ down 2.6% to 509.87
  • Nikkei down 3.7% to 21,142.96
  • Topix down 3.7% to 1,510.87
  • Hang Seng Index down 2.4% to 26,129.93
  • Shanghai Composite down 3.7% to 2,880.30
  • Sensex down 3.7% to 38,269.99
  • Australia S&P/ASX 200 down 3.3% to 6,441.20
  • Kospi down 3.3% to 1,987.01
  • German 10Y yield fell 7.7 bps to -0.62%
  • Euro up 0.4% to $1.1048
  • Brent Futures down 4% to $50.12/bbl
  • Italian 10Y yield rose 8.1 bps to 0.908%
  • Spanish 10Y yield rose 1.9 bps to 0.329%
  • Brent futures down 2.9% to $50.69/bbl
  • Gold spot down 1.1% to $1,626.49
  • U.S. Dollar Index down 0.3% to 98.19

Top Overnight News

  • German growth will almost certainly be weighed down by the coronavirus, even if it’s still unclear how much, said Bundesbank President Jens Weidmann. Numerous trade-related uncertainties continue to threaten the nation’s export-oriented companies, and the virus outbreak presents an additional economic risk, he said at a press conference Friday
  • South Korea reported 571 more cases on Friday, taking its tally past 2,300, and Japan’s Hokkaido declared a state of emergency. Switzerland banned events with more than 1,000 people
  • Joe Biden is hoping fora win in South Carolina on Saturday to propel him to a strong showing three days later on Super Tuesday that would give fresh momentum to his flagging campaign for the Democratic presidential nomination
  • U.K. house prices climbed at the strongest annual pace since July 2018 this month, continuing a positive trend following Boris Johnson’s election win, according to Nationwide Building Society
  • German unemployment unexpectedly fellfor a second month, highlighting the resilience of the labor market to a manufacturing slump and new threats from the coronavirus outbreak

Asian stocks traded lower across the board following the bloodbath on Wall Street which saw the Dow plummet almost 1200 points, S&P break below the 3000 mark and the Nasdaq zero in on the 8500 level. Dow and S&P posted their worst day since February 2018 as the three major indices dipped into correction territory. This performance reverberated into APAC markets as ASX 200 (-3.3%) opened sharply lower and held onto the losses, and again with mining and financials posting heavy losses. Nikkei 225 (-3.6%) fell deeper into correction territory and also saw another day of underperformance in manufacturing, autos and financials, whilst also being weighed on by a firmer JPY. KOSPI (-3.3%) bore the brunt of yesterday’s BoK surprise hold coupled with total virus cases in South Korea topping 2k as the index gave up its 2k handle, and with heavyweights Samsung Electronics and Hyundai Motors lower to the tune of 2-5% amid supply chain woes, and with the latter suspending production at its No2 plant in South Korea after a worker tested positive for the virus. Elsewhere, Hang Seng (-2.4%) and Shanghai Comp. (-3.7%) conform to the global stock rout, with the former also in correction zone and again pressured by the usual suspects – oil giants, entertainment and financials stocks, whilst the latter initially scraped off lows before extending losses, as the total deaths in the country showed an increase vs. yesterday, although the rate of new cases continues its recent downtrend. US equity futures extended losses with the E-Mini Mar’20 contract falling below 2950.

Top Asian News

  • Mahathir Loses Party Support for Malaysian Prime Minister Job
  • ING Alleges Father-Son Fraud After Commodity Firm Collapses

Another grim session thus far for European equities (Eurostoxx 50 -4.2%) as the selling pressure facing global stocks shows no signs of letting up. Since yesterday’s close there hasn’t been much in the way of a notable pickup in coronavirus-related outbreaks with the newsflow running largely at the same clip as it has done for the past few sessions as various nations such as New Zealand, Lithuania, Nigeria and Belarus all report their first cases. The current market narrative is having to contend with many of the same issues it has throughout the week, with the uncertainty surrounding coronavirus clearly top of the list of investor concerns, whilst a lack of meaningful policy response from either fiscal or monetary authorities has only added to the current apprehension. Additionally, geopolitical unrest between Turkey and Russia as well as focus on who US President Trump’s opponent in the 2020 White House race could be (Sanders would naturally be seen as a negative) have added to the bearish impulses. All of this has triggered a serious re-reassessment of valuations (mainly US) that many had questioned on the way up in recent months, however, it remains to be seen how far the current slump will extend as the ongoing drip-feed of disappointing corporate updates continues to suppress investor appetite. In terms of the breakdown for Europe this morning, selling across the 10 key sectors has been relatively broad-based once again, with travel names continuing to be a prime target for selling pressure after IAG (-2.5%) warned that, amid COVID-19 the Co. could not forecast 2020 profits. Furthermore, for the sector, easyJet (U/C) shares are also seen lower after warning of softening demand amid the virus outbreak. Elsewhere to the downside, Lagardere (-10.1%) sit at the foot of the Stoxx 600 post-earnings, Commerzbank (-4.1%) are seen lower in a disappointing yield-environment for the financial sector whilst also being urged to make deep cuts and overhaul its business model. Such is the extent of the selling, despite opening with gains of 3.3%, shares in Thyssenkrupp (-4.7%) eventually fell victim to the bloodbath in Europe. One of the few success stories thus far is Rolls-Royce (+6.1%) after announcing it will be incurring no further costs from the Trent 10000 issues.

Top European News

  • German Unemployment Falls Again as Economy Shows Resilience
  • ECB’s Weidmann Says Virus Puts German Growth Forecast at Risk
  • Swedish Economy Loses Steam as Focus Shifts to Virus Fallout
  • Commerzbank Urged to Step Up Cuts, Overhaul Model in Review

In FX, It’s seems when push really comes to shove and risk aversion intensifies to the point of full blown mass exodus levels, the Yen becomes the default destination and accordingly Usd/Jpy alongside crosses are collapsing at pace. The headline pair is now probing bids near 108.50 and a break could expose the 200 DMA (circa 108.42) with inverse bearish repercussions for the DXY that is already looking increasingly precarious a fraction above the 98.000 handle having already breached a 50% retracement level on the charts at 98.134. Meanwhile, the Franc is also attracting capital fleeing from high beta, activity and cyclical counterparts, as Usd/Chf hovers closer to the bottom of a 0.9695-10 range and Eur/Chf retreats through 1.0650 even though the single currency continues to proffer from the Dollar’s demise amidst ever declining US Treasury yields and curve flattening. However, Eur/Usd has run in to some resistance around 1.1050 where option expiry interest in 1.4 bn resides and extends to 1.1060. Elsewhere, Gold has not benefited from the safety-flight perhaps oddly or perversely, as Xau/Usd consolidates below Usd1650/oz and holdings are liquidated to free up cash over month end and for other funding needs.

  • GBP - The Pound is not renowned for any safe-haven properties and still has residual RHS month end Eur/Gbp demand to contend with as the cross straddles 0.8550, but Cable is clinging to 1.2900 due to Buck underperformance and braced for the UK-EU trade off to begin.
  • CAD/AUD/NZD/NOK/SEK - Having displayed varying degrees of resilience in the face of an escalating FTQ, the Loonie, Aussie and Kiwi have all succumbed to the inevitable or reality, with Usd/Cad topping 1.3450 ahead of Canadian GDP and PPI, Aud/Usd struggling above Fib support circa 0.6513 protecting 0.6500 and Nzd/Usd now south of 0.6350 amidst renewed calls for RBA and RBNZ easing in response to nCoV. Similarly, the Scandi Crowns are sinking as sentiment sours and local data is shrugged off, such as Swedish Q4 GDP that was bang in line with consensus anyway, and Norwegian Krona falls additionally in sympathy with crude. Eur/Nok hit fresh record highs over 10.4300 and Eur/Sek almost touched 10.7000 before some paring back.
  • EM - Deeper declines and depreciation de rigour, but the Rouble and Lira are still prone to inverse moves on oil prices while anxiously eyeing events in Syria’s Idlib where attempts to mediate between Turkey and Russia are ongoing following a further escalation in military strikes. Elsewhere, intervention is becoming more commonplace in an effort to stop runs on various currencies that have plunged to all-time lows

In commodities, WTI and Brent prices are once again experiencing a significant sell-off this morning with WTI having breached the USD 45/bbl mark and crude well below USD 50/bbl at worst, with losses just shy of USD 2/bbl at present. Focus does, as has been the case all week, remain almost exclusively on the coronavirus with multiple new cases being reported as well as the implementation of emergency or lockdown procedures in some regions. Overnight, prices did briefly see support of reports that Saudi Arabia are looking for a 1mln BPD production cut, and they would be responsible for the majority of such a reduction; while the price support was fleeting, these comments are notable given that such a level would be almost double the figure recommended by the JTC (600k BPD) (Note, similar reports were echoed ahead of the US entrance to market). Next week sees the OPEC meeting where all eyes will be on firstly if production cuts are announced and then, assuming they are announced, the magnitude of reductions; ING posit that 600k would likely be sufficient to maintain market balance at present into Q2 but, in the event that Libyan supply returns earlier than expected cuts of the 1mln magnitude would be required. Elsewhere, geopolitical tensions over Syrian between Russia and Turkey have significantly flared up during the session, with Russia sending frigates to the area and the UN to host an emergency meeting, at Turkey’s request, on this later. While not currently appearing to have an impact on commodity prices, it could well become a focus point if the situation deteriorates further. Moving to metals, where spot gold isn’t able to benefit from the continued sell-off markets are seeing, as such the yellow metal is down by circa USD 10/oz at present; however, it is worth caveating that spot gold prices are still well-elevated vs. recent levels and it does appear that today’s lack of support for the metal is at the expense of a significantly bolstered JPY.

US Event Calendar

  • 8:30am: Advance Goods Trade Balance, est. $68.5b deficit, prior $68.3b deficit
  • 8:30am: Retail Inventories MoM, est. 0.2%, prior 0.0%, revised 0.0%
  • 8:30am: Wholesale Inventories MoM, est. 0.1%, prior -0.2%
  • 8:30am: Personal Income, est. 0.4%, prior 0.2%
  • 8:30am: Personal Spending, est. 0.3%, prior 0.3%
  • 8:30am: Real Personal Spending, est. 0.2%, prior 0.1%
  • 8:30am: PCE Core Deflator MoM, est. 0.2%, prior 0.2%; PCE Core Deflator YoY, est. 1.7%, prior 1.6%
  • 8:30am: PCE Deflator MoM, est. 0.2%, prior 0.3%; PCE Deflator YoY, est. 1.8%, prior 1.6%
  • 9:45am: MNI Chicago PMI, est. 46, prior 42.9
  • 10am: U. of Mich. Sentiment, est. 100.7, prior 100.9; Current Conditions, prior 113.8; Expectations, prior 92.6

DB's Jim Reid concludes the overnight wrap

It was the thirteenth anniversary of the EMR yesterday and obviously an unlucky one for markets. Ahead of ‘leap day’ tomorrow, markets bounced around in a wild fashion in what ended up being one of the worst days for markets since the GFC. It reminded me of the days writing this during the crisis where I would just watch Bloomberg TV all evening in awe and try to work out what Fannie Mae going into conservatorship actually meant. Now I go home and have to watch “In The Night Garden” which is only just a little bit easier to understand. Anyway, for the second day in a row, markets did try to rally as the S&P 500 recovering from -3.5% to just -0.62% before selling off hard into the NY close to finish at -4.42%, in the worst day since 2011 as more covid-19 cases were found in the US and Europe. It was a substantial risk off day for most markets which has carried on into the Asian session where the Nikkei (-4.28%), Hang Seng (-2.54%), Shanghai Comp (-3.14%) and Kospi (-3.24%) are all seeing heavy losses. As for fx, the Japanese yen is up +0.60% while in commodities Brent crude oil prices are down a further c. -2.53% this morning to $50.86, the lowest level since June 2017. Elsewhere, futures on the S&P 500 are down another -1.37% this morning while 10y UST yields are down another -1bps to 1.252%.

New Zealand, Lithuania and Nigeria all reported their first cases overnight bringing the total number of countries with reported cases to at least 48 across the globe. The reported case in Nigeria is also the first case in sub-Saharan Africa and it would be concerning if the virus spreads across the region due to a relative lack of medical facilities. South Korea also confirmed another 256 infections (182 in Daegu) overnight bringing the total number in the country to 2,022. South Korea’s Vice Health Minister Kim Ganglip also said at a briefing that the country has completed tests for 1,299 members of the Church at the centre of outbreak (among its 9,334 members) and the results of the tests will be available over the weekend. He further added that so far the ratio of confirmed cases to suspected cases is “very high.” So one to keep an eye on. In not so encouraging news, the US FDA confirmed the first drug shortage relating to the coronavirus overnight saying the shortage is due to an active ingredient used to make the drug.

On the flipside China’s return to work continues with the count of new cases remaining relatively low there. China reported 327 new cases overnight. Also, the Ministry of Transport said in a statement that China will resume buses, subways and taxis in urban and rural areas with lower coronavirus risks, adding that the move is aimed at supporting factory resumptions and stabilizing the economy.

In other news, the South Korean government announced a slew of subsidies and consumer incentives to support the economy. The measures include rent subsidies for small businesses along with temporary tax breaks on car purchases with the government adding that it will seek parliamentary approval for an extra budget before the end of March. Elsewhere, Etsuro Honda, an adviser to Japanese PM Shinzo Abe and one of the key architects of Abenomics, said Japan should compile another economic package with fresh spending of at least JPY 5tn ($45 bn) to respond to a severe hit from the coronavirus outbreak. Business continues to grapple with the impact with Anheuser-Busch InBev (the world’s largest brewer) yesterday forecasting the steepest decline in quarterly profits in at least a decade due to the virus.

Over the last two or three years at least, the circuit breaker to risk off moments have usually been a Donald Trump tweet or a central bank u-turn. There is very little the former can do to control the global spread of the virus though and little central banks can do either. Once we talked to our expert epidemiologist on Monday there has been an inevitability about the rolling newsflow this week. However any signs that central banks are heavily leaning towards imminent cuts will be a chance for risk to have some more two way tension. More so if governments spend big. On central banks, as you’ll see later Lagarde didn’t suggest this was particularly imminent in Europe and recent Fed speakers (eg Clarida on Wednesday) also don’t appear in a hurry to cut. The most likely way risk bounces for a sustainable period is if the spread of the virus just peters out and never really accelerates outside of China as it did within Hubei province at least. This doesn’t feel likely in the near term. Italy now has 655 cases which is up from 3 this time last week. On a more positive note the spread isn’t as aggressive everywhere as countries like Japan still ‘only’ have 214 reported cases so far (93 cases last Friday) despite being nearer to the epicentre of the virus for longer. However as a measure of how risk adverse governments are Japan announced that all schools will close 3 weeks early from Monday and stay closed until after the spring holidays. Expect this sort of announcement to build around the world. As a note of caution to the above though, Masahiro Kami, chair of the Medical Governance Research Institute in Tokyo, has said this morning that the country’s official infection tally is suspected to be just the tip of the iceberg of a much wider outbreak as “those with mild symptoms are not being tested.” He added that, “for every one who tests positive there are probably hundreds with mild symptoms.”

Yesterday saw the first cases announced in Estonia, Ireland, Northern Ireland, Georgia and the Netherlands. The German state of North Rhine-Westphalia's announced 14 new cases and there were 38 new confirmed cases in France. Saudi Arabia has suspended visas for religious pilgrimages as we discussed yesterday and also tourist visas from countries with reported infections. The Middle East also reported a jump in cases yesterday with Kuwait moving from 26 to 43 while Iran has 270 cases now including 26 deaths (up from 19 yesterday) and the UAE has 19 cases.

The mid-day rally back in the US yesterday seemed to go back into fast reverse when California announced 33 positive tests with the state monitoring 8,400 people after they recently traveled to Asia. The NASDAQ followed the S&P, finishing down -4.61%, its worst day in more than 8 years. The VIX index finished the day at 42.23, its highest levels Since August 2015, even higher than the “Volmeggedon” closing levels back in February 2018. As my colleague Torsten Slok pointed out the market correction over the past six trading sessions (-12.03%) is the fastest 10%+ decline in the S&P 500 from a record high in the last several decades of data. As another colleague Brett Ryan pointed out only 4 other incidents have seen larger 6-day moves than this. These are: Aug 2011 (-13.4%), Oct 2008 (-21.6%), July 2002 (-13.1%) and Oct 1987 (-27.7%).

Earlier Europe had a torrid time with the STOXX 600 closing down 3.75% but closing during a period where the US was starting to rally back. As investors poured into safe assets, 10yr Treasuries closed at 1.261% yesterday to breach the 1.3% mark for the first-time ever (going down as far as 1.24% intraday), while 2yr Treasury yields are actually on track for their biggest weekly decline (-36.0bps so far) since October 2008, so some truly astonishing moves. Given this, it won’t surprise you to know that investors are increasingly pricing in the chances of a monetary policy response even if central bankers are reticent currently. In fact, the market has now fully priced in 3 rate cuts from the Fed by year-end, with the first fully priced by the April meeting. Even for the March meeting in less than 3 weeks’ time, there’s been a massive shift in market expectations since last Friday, with the market pricing in a 92.8% chance of a cut, compared to just 8.1% last Friday.

Elsewhere Brent crude fell for a 5th successive session (-2.34%) to close beneath $52/barrel for the first time since December 2018. Peripheral European debt also suffered, with the spread on Italian and Spanish 10yr debt over bunds rising by +11.9bps and +9.8bps respectively yesterday. 10yr bunds fell -3.8bps. Credit had a challenging day with Euro and US HY spreads +18bps and +34bps wider.

In terms of newsflow, ECB President Lagarde said to the Financial Times yesterday that the coronavirus hadn’t yet reached the point where it’d have a long-term impact on inflation and require a monetary policy response, saying “we are certainly not at that point yet”. Her comments came against the backdrop of what were some pretty resilient data from Europe yesterday, with the European Commission’s economic sentiment indicator rising for a 4th consecutive month in February to 103.5 (vs. 102.8 expected), which put the index at its highest level since last May. That said, don’t get too overexcited by this as the data was collected from Feb 3rd-20th, before the recent market selloff sparked by the upsurge in European cases, and when the coronavirus was still fairly contained in Asia. Nevertheless, the Euro outperformed other major currencies yesterday, strengthening by 1.10% against the US dollar in its best daily performance since May 2018.

Chicago Fed President Charles Evans also signalled that he thought monetary action on the virus was premature and that it may take months to understand the economic impact, possibly worrying investors that the central bank was going to be too late to act.

Here in the UK, sterling fell after the release of the government’s Brexit negotiating mandate to close down -0.12% against the US dollar and -1.21% against the euro. It comes ahead of the start of the formal negotiations on the future relationship next week, with the document making clear that the UK would not agree to the EU’s demands for a level-playing field. In the text, it said that “we will not agree to any obligations for our laws to be aligned with the EU’s, or for the EU’s institutions, including the Court of Justice, to have any jurisdiction in the UK.” The document also said that if there wasn’t the hope of reaching an agreement by the June meeting, the government would decide whether to move over to preparation for leaving without a deal. So something to keep an eye on as we move through the year.

US Q4 GDP came in at 2.1%, which was in line with expectations and unrevised. Durable goods orders, especially the core, were much stronger than expected – down -0.2% (vs. -1.4% expected) and core PCE inflation was revised down further. The durable goods numbers likely gets discounted given the backward looking nature and the coming impact of coronavirus.

Ahead of tomorrow’s Democratic primary in South Carolina, a Monmouth University poll showed former Vice President Joe Biden with a commanding lead ahead of the vote. The poll had Biden on 36%, followed by Bernie Sanders on 16% and Tom Steyer on 15%, with all the other candidates including Elizabeth Warren, Amy Klobuchar and Pete Buttigieg on single digits (Bloomberg won’t be on the ballot tomorrow). Biden is very much the favourite to win the primary there, with FiveThirtyEight’s model giving him a 94% chance of winning the most votes, while he’s far ahead on both PredictIt and Betfair as well. He’ll be hoping that a victory there can power him forward to Super Tuesday next week, which is the most important day of the entire primary season with the largest number of delegates up for grabs in a single day. With Sanders ahead in the national polls, success for Biden in South Carolina would set him up as Sanders’ main challenger from the more centrist/moderate wing of the party, particularly after Mike Bloomberg underwhelmed in the TV debates.

Looking at the day ahead, we have a raft of data releases out. Highlights include the preliminary CPI reading for February for Germany, France and Italy, as well as France’s final GDP reading for Q4 and Germany’s unemployment change for February. On the other side of the Atlantic, the US will be releasing preliminary wholesale inventories for January, as well as January’s personal income, personal spending and the PCE deflator. In addition to this, we’ll get the February MNI Chicago PMI, the final February University of Michigan consumer sentiment index, and Canada’s GDP for December. From central banks, we’ll hear from Bundesbank President Weidmann, the Fed’s Bullard, and the BoE’s Haldane and Cunliffe.