Gold traders 360-degree playbook

Head of Research

11 Mar 2020

In this week’s gold traders report we focus on the massive move higher in real US Treasury yields in the past two days and the impact this has had on the USD, which coincidently had its best day since 2016. USDJPY and EURUSD have been well traded in this USD move, with USDJPY moving into 105.92 helped by the move in Treasuries and the S&P 500.

Today is a new day though and we’re seeing sellers of risk emerge here in Asia, with S&P 500 futures -1.5%, with Asian equities lower (the ASX 200 -1.3%) and traders are back buying bonds, so the USD is offered. Given these moves, gold (USD) is finding buyers again – as goes the S&P 500, as too goes gold.

We should consider the large range of measures which have disclosed in the past 24 hours, both on a fiscal and monetary level and if equities are going to rally, then it had to do so given the capacity of this news. As I say, the moves have been short lived but we need to adjust our expectations of movement – 1.5% is the new 0.3%.

Measures that have been proposed:

Trump speaking to Republicans about taking the payrolls tax to 0% for 12 months, but it would only kick in after the November elections – a massive politicising of the virus – seems very optimistic given how stimulatory it would be
Italy are discussing a E16b stimulus / E25B to counter the virus – PM Conte calls on ECB to do “whatever it takes” to offset the fallout from the virus
ECB president Christine Lagarde ordered a ‘rapid fiscal response’ from EU govts – the market expects a 10bp cut from the ECB, as well as a range of other measures.
In Australia, talk is we should hear a $10b fiscal plan from Scott Morrison shortly
Indonesia govt suggesting that they are working on more stimulus
The Abe government talking about a second fiscal stimulus (in Japan) of Y430.8b
RBNZ Orr putting all policy on the table – rate cuts, FX intervention, QE – he just doesn’t think NZ needs it
Bank of Korea indicated they would intervene in FX markets if needed – also interesting that the daily rate of new infections in Korea dropped to the lowest level in 11 days
BCB (Brazil CB) announced they were offering 20k FX swap contracts at auction
Mexico CB increased intervention levels from 20b to 30b

I’ll touch base on the ECB meeting tomorrow and how EU assets may trade given expectations.

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