Asian stocks slipped and so did the region’s currencies as virus cases rose in South Korea and Japan and investors quit local assets in favour of safety further afield. Gold traded above 1612$ but has since backtracked to 1608.73$. There was a jump in infections in South Korea, two deaths in Japan and researchers finding that the pathogen spreads more easily than previously believed. MSCI’s Asia-Pacific shares outside Japan slipped 0.3%, led by drops on Hang Seng and KOSPI. The S&P 500 traded a fraction softer and European futures fell 0.2%. Japan’s Nikkei was also in positive territory thanks to an overnight slide in the yen - a boon for exporters - but gains were pared as more cases of infections outside China hurt sentiment. South Korea’s government reported 31 new cases of coronavirus after a new outbreak was traced to a church, bringing the number of people infected in the country to 82. More than 2,100 people have died from the coronavirus in China and there are 74,500 cases there.
Currency markets are still reeling from an overnight plunge in the Japanese yen, which fell even as safe-haven assets such as gold climbed. The yen had been undermined by a run of weak data this week, but traders were unnerved when it blew past a support level at 110.30 per dollar, accelerating its fall and questioning its safe-haven status. It dropped nearly 1.4% against the dollar, its sharpest fall in six months, and 2% against the Norwegian krone - its sharpest daily drop in almost three years. The skittish mood had investors dumping regional currencies in Asia. USDSGD traded above 1.4, an almost three-year low, the Korean won weakened past 1,200 to the dollar. Currencies from the Australian dollar to the Indian rupee were under pressure as concerns about the impact of the coronavirus drove money to the dollar. The Australian dollar fell 0.6% to an 11-year low of $0.6633 after a surprise rise in unemployment.
The Chinese government has once again announced more stimulus. As expected, China’s banks cut the benchmark borrowing costs for new corporate and household loans but the Chinese government also went ahead with more cash injections and is easing curbs on the movement of people. It was also reported that big manufacturing hubs in China are also starting to get its factories to restart production although there are still limitations in place. The lowering of interest rates, cutting of corporate tax rates, increasing money supply, and the resuming of production is helping the market sentiment although there is fears that other countries like Japan and South Korea might start struggling with the virus as it spreads. China has reported a large drop in new cases and announced an expected interest rate cut to boost its economy as the yuan continues to lose ground against the USD having traded above 7.04 today.
European Union leaders will clash this week over the EU’s 2021-2027 budget as Britain’s exit leaves a 75 billion euro hole in the bloc’s finances just as it faces costly challenges such as becoming carbon neutral by 2050. The budget is the most tangible expression of key areas on which the EU members must focus over the next seven years and their willingness to stump up. For the coming seven-year cycle, the starting point for talks is 1.074% of the bloc’s gross national income (GNI), currently 1.09 trillion euros. By contrast, EU national budgets claw in on average 47% of the annual GDP. Disputes over hundredths of percentage points have kept EU and government officials busy for the last two years and many diplomats remain sceptical that a deal will be reached by Friday. The EU budget gets money from customs duties on goods entering its single market, a cut of sales tax, antitrust fines imposed by the EU on companies, and from national contributions. It spends money on subsidies for EU farmers, on equalizing living standards across the bloc, border management, research, security and various non-EU aid programs. Some net contributors - the Netherlands, Austria, Sweden and Denmark - want to limit the budget to 1.00% of GNI. Germany, the biggest contributor, is prepared to accept a bit more while still short of 1.07%. EU leaders will discuss the idea of a tax on plastic waste that would go to EU coffers and sharing some profits from trading carbon emission permits. The EU is also considering other taxes - on the digital economy, on flying, on financial transactions and on products made with high CO2 emissions imported into the EU.