UOB Group’s Economist Barnabas Gan gives his views on the recently announced Budget 2020 in Singapore.

Key Quotes

“The Singapore Budget 2020 is being announced in a time of unprecedented global threat from multilateralism, and amid on-going geopolitical tensions, the COVID-19 outbreak and global economic uncertainties.”

“Owing to the uncertainties, Budget 2020 has introduced two special packages: the Stabilisation and Support Package (S$4.0bn) and a Care and Support Package (S$1.6bn). Collectively, the above-mentioned packages will set aside S$5.6 billion (or 1.1% of GDP) to support businesses and households with the COVID-19 outbreak.”

“The Stabilisation and Support Package is targeted to help workers remain employed and aid companies with cash flow, while the Care and Support Package is to support households and alleviate concerns over cost of living.”

“Beyond near-term uncertainties, the budget recognises four key areas to prepare Singapore and Singaporeans for mid-to-long term challenges and opportunities. These include (1) growing Singapore’s economy and creating opportunities, (2) caring and nurturing Singaporeans at every stage of life, (3) building a liveable and sustainable Singapore in the face of climate change while securing Singapore’s sovereignty as an independent nation, and (4) working together to mobilise all Singaporeans to build a nation and a home.”

“For fiscal year 2020, revenue is expected to come in at S$76.0 billion, or an increase of S$1.3 billion over the revised 2019 estimates… Overall budget balance remains expansionary at an estimate of S$10.9 billion deficit, or 2.1% of GDP. This compares to a revised overall budget deficit of S$1.7 billion in FY2019.”

CME Group’s advanced readings for GBP futures markets showed investors added around 1.2K contracts to their open interest positions on Wednesday, resuming the uptrend after Friday’s drop. In the same line, volume reversed the previous pullback and increased by around 52.2K contracts.

GBP/USD looks capped by 1.3060, the 55-day SMA

Cable’s inconclusive session on Tuesday was amidst rising open interest and volume and following another failed attempt to break above the 1.3060/65 band, where is located the 55-day SMA. That said, the continuation of the leg lower could extend to, initially, monthly lows in the 1.2870 region (February 10th).

Enrico Tanuwidjaja, Economist at UOB Group, reviewed the impact of the Chinese COVID-19 on the latest trade balance figures in Indonesia.

Key Quotes

“Indonesia trade balance posted a large deficit of USD864.2mn in January 2020, as exports to Indonesia key trading partner – China dropped amidst impact from the novel coronavirus (COVID19) outbreak, which more than offset the decline in imports.”

“Despite the impact of slower exports growth hitting some of the Indonesia’s key commodity exports and a high likelihood that it will take some time for Indonesia to diversify, we are hopeful that COVID-19 would soon be contained (within 6 months or earlier) and as such are still projecting a steadier expansion in H2 2020.”

Risk-recovery emerged as the main underlying theme in Asia this Wednesday, reflective of a rebound in the Asian stocks, Wall Street futures and Treasury yields. A slowdown in the number of new coronavirus cases in China’s Hubei province, the epicenter, and China’s containment efforts help subside the fears over the economic fallout of the virus outbreak.

The safe-haven yen was the weakest across the fx board, as USD/JPY topped the 110 level for the first time in five days. The Aussie also staged a comeback and battled the 0.67 handle while NZD/USD cheered the upbeat comments from the Reserve Bank of New Zealand (RBNZ), Governor Orr, amid improved risk tones.

Meanwhile, USD/CAD kept its overnight range trade intact around mid-1.32s just as the cable held onto the 1.30 barrier. EUR/USD, however, attempted an anemic bounce above 1.0800 from multi-year lows amid broad US dollar retreat. Despite the upside attempts, the bearish bias remains in place for the shared currency.

On commodity markets, gold prices on Comex consolidated near a six-week high of $1608.15 while oil prices (on NYMEX) jumped nearly 1% ahead of the US weekly crude supply report.

Main Topics in Asia

RBNZ: Both the economy and monetary policy are in a good position

British prime minister again displays a cosiness with Beijing – SCMP

China's Hubei province, epicentre of coronavirus outbreak, reports 1,693 new cases on Feb 18 vs 1,807 on Feb 17

WHO urges calm as China virus death toll reaches 2,000 – AFP

China’s NHC reports 1,749 new confirmed cases of coronavirus, 136 new deaths – Xinhua

Moody's says credit conditions in Asia will turn negative in 2020

S. Korea confirms 15 new coronavirus cases, Hong Kong reports 2nd death

Singapore’s FinMin Heng: SGD exchange rate has sufficient band to move as appropriate

S&P: Coronavirus will deliver a short-term blow to China’s Q1 economic growth

Sources: Japan govt to maintain view that economy is recovering despite virus risks – Reuters

China dumps US Treasuries for the sixth straight month in December

US Pres. Trump casts doubts over India trade deal ahead of visit

Key Focus Ahead

The main highlight in Wednesday’s EUR macro calendar is likely to be the UK Consumer Price Index (CPI) for January, due at 0930 GMT, with both the annualized headline and core figures seen accelerating while on a monthly basis, the CPI is likely to report deflation.

Also, in focus will remain the Eurozone Current Account and Construction Output data due later in the European trading. The Brexit-related headlines will be also eyed for fresh trading incentives.

The NA session offers a slew of US macro releases, including the Building Permits, Housing Starts, Producer Price Index (PPI), all of which will drop in at 1330 GMT. At the same time, the Canadian CPI data will be released.

Apart from the data and coronavirus-related updates, the speeches by the US Federal Reserve (Fed) officials Mester, Kaplan and Kashkari will remain in focus ahead of the key FOMC January meeting’s minutes, slated for release at 1900 GMT. Later in the American afternoon, the American Petroleum Institute’s (API) weekly Crude Stocks data will be published at 2130 GMT, soon followed by New Zealand’s PPI data release.

EUR/USD: Investors add bets to position for weakness in the Euro

EUR/USD is looking south and investors are adding bets to position for deeper losses in the common currency. The spot printed its worst daily close in nearly three years on Tuesday. Broader market sentiment and Eurozone data are likely to guide EUR/USD pair.

GBP/USD awaits UK Consumer Price Index for fresh moves

GBP/USD clings to 1.3000 ahead of the London open on Wednesday. The cable has been in a 10-pip choppy range between 1.2995 and 1.3005 since the start of the Asian session. The reason to blame could be traced from the upcoming UK Consumer Price Index (CPI) data.

UK inflation preview: How CPI may finally break the pound's prowess

UK inflation figures for January are set to show a rebound to 1.6%. GBP/USD has shown resilience to weak wage figures and worrying Brexit headlines. Downbeat CPI figures may be a breaking point for the pound.

January FOMC Minutes Preview: The economic comparisons accumulate

Unanimous vote for stable policy at January 28-29 meeting. Powell testimony in Congress lauds economy, labor market. Dollar stronger on economic comparison European Union.

Open interest in EUR futures markets shrunk for the second session in a row on Tuesday, this time by just 928 contracts according to flash data from CME Group. On the other side, volume posted the largest single day build so far this year, up by around 153.5K contracts.

EUR/USD: Downside momentum losing traction?

EUR/USD closed below the key support at 1.08 the figure on Tuesday, levels last seen in April 2017. While the large build in volume opens the door for extra pullbacks in the near-term, shrinking open interest also hints at the likeliness that the downside momentum could be running out of steam.

  • Shares traders in Asia-Pacific stay cautiously optimistic.
  • Coronavirus figures flash mixed signals while diplomats from Beijing show readiness to confront the epidemic.
  • Chinese headlines will keep the driver’s seat amid a lack of major data/events.

Following their fiercest drop in three weeks, Asian equities bounce back amid clues of further liquidity infusion from China as well as cautious optimism considering Beijing’s upbeat outlook.

Despite Moody’s flashing warning to China and Asia, on the back of coronavirus fears, Chinese President Xi Jinping says that the dragon nation will be able to meet this year’s growth target.

The Reuters’ news follows comments from China’s Commerce Ministry that showed readiness to announce further measures to keep foreign investments. Also supporting the expectations of further stimulus from China come from the People’s Bank of China’s (PBOC) cut to the medium-term lending rate on Monday.

Concerning the coronavirus numbers, data from Hubei and mainland China suggests a steady decline in the infections. However, the death rate has been strong and the cases of the Princess cruise ship in Japan stand tall.

While portraying the same, MSCI’s index of Asia-Pacific shares outside Japan register 0.44% gains whereas Japan’s NIKKEI rises 0.94% to 23,415 during the pre-European session on Wednesday.

Markets in China and Hong Kong join those of Indonesia and India to register sub-1.0% gains whereas South Korea’s KOSPI loses 0.10% to 2,206 by the press time despite the government’s plan to unveil comprehensive economic measures.

The US 10-year treasury yields recover to 1.566% whereas S&P 500 Future buck the Wall Street’s losses.

Considering the lack of major data/events on the economic calendar, updates from China will be the key driver for the Asian equities.

Economist at UOB Group Barnabas Gan assessed the outlook on Thailand’s economic growth for the current year.

Key Quotes

“Thailand’s economy expanded 1.6% y/y in 4Q19, marking its slowest growth pace since 3Q14. On a quarter-on-quarter seasonally adjusted basis, the economy expanded merely 0.2% in 4Q19. Accounting for the latest growth print, Thailand clocked 2.4% growth for the whole of 2019.”

We are downgrading our full-year growth further to 2.0% for 2020, accounting for the negative impact from the COVID-19 outbreak. This is down from our previous estimate of 2.8% which we highlighted was still subjected to downside risks of between 0.5% and 1.0% depending on the severity of the COVID-19 outbreak.”

“With the Bank of Thailand cutting its benchmark rate by 25bps to an unprecedented low of 1.0% in its February 2020 MPC meeting, we think that policy space is limited at this juncture. We also view that Thailand’s elevated household debt levels and inflation pressures could be exacerbated if rates are cut further in 2020. As such, we do not expect the Bank of Thailand to reduce rates further in 2020. Instead, we expect economic stimulus to come from fiscal space (ie budget disbursements, relaxed rules to facilitate capital outflows etc) to mitigate the impact arising from the COVID-19 outbreak.”

Here is what you need to know on Wednesday, February 19:

Coronavirus: The respiratory disease has already taken the lives of over 2,000 people including a second victim in Hong Kong and infected over 75,000. However, contrary to Tuesday, markets are calmer as Beijing has announced more measures to help the economy. This includes bailing out airlines, waiving social security payments, and more.

Markets: The safe-haven yen is retreating with USD/JPY topping 110 while Gold's rally halted around $1,600. The dollar is only marginally lower against other currencies.

Robert Kaplan, President of the Dallas branch of the Federal Reserve, has reaffirmed the bank's wait-and-see mode. His speech came ahead of the release of the FOMC Meeting Minutes from the January decision, in which the Fed left rates unchanged and made only subtle changes to the outlook. The minutes may reveal more on the Fed's thinking on the coronavirus, inflation, growth, and more.

See January FOMC Minutes Preview: The economic comparisons accumulate

EUR/USD has been trading around 1.08 after dropping sharply on Tuesday and filling the "Macron Gap." The ZEW Economic Sentiment figure was the latest worrying eurozone release to push the pair deeper into levels last seen in April 2017.

GBP/USD has been able to recover from disappointing wage figures and the stark differences between the UK and the EU ahead of official post-Brexit talks. Sterling faces another test on Wednesday – Consumer Price Index figures for January.

See UK inflation preview: How CPI may finally break the pound's prowess

AUD/USD is edging higher to around 0.67 amid the better market mood. Australia's Wage Price Index rose by 0.5% in the fourth quarter, within expectations. Thursday's jobs report is awaited.

Canada publishes its inflation figures for January with both headline and Core CPI statistics set to edge higher. The Canadian dollar has been recovering alongside oil prices.

Cryptocurrencies have consolidated their gains made on Tuesday with Bitcoin holding above $10,000 and Ethereum trading around $280.

Coronavirus fears continue underpinning gold prices. While China has announced measures to help the economy, fears of growing economic damage, XAU/USD is holding onto gains above $1,600. What are the next levels to watch?

The Technical Confluences Indicator is showing that significant resistance awaits at $1,612, which is the convergence of the multi-year high, the Pivot Point one-day Resistance 1, the PP one-week R3, and the Bollinger Band 1h-Upper.

Further above, the upside target is $1,620, which is where the Pivot Point one-day Resistance 2 hits the price.

Looking down, substantial support is at $1,599, which is the confluence of the Fibonacci 23.6% one-day, the previous 4h-low, the Simple Moving Average 5-4h, the PP one-week R2, and more.

Further down, a considerable cushion awaits gold prices at $1,594, which is a juncture including the Fibonacci 61.8% one-day, the PP one-week R1, the SMA 5-1h, and the Fibonacci 23.6% one-month.

Here is how it looks on the tool:

Gold prices technical confluence levels February 19 2020.png

Confluence Detector

The Confluence Detector finds exciting opportunities using Technical Confluences. The TC is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc. Knowing where these congestion points are located is very useful for the trader, and can be used as a basis for different strategies.

This tool assigns a certain amount of “weight” to each indicator, and this “weight” can influence adjacents price levels. These weightings mean that one price level without any indicator or moving average but under the influence of two “strongly weighted” levels accumulate more resistance than their neighbors. In these cases, the tool signals resistance in apparently empty areas.

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  • DXY trades in the vicinity of recent YTD highs just below 99.50.
  • Coronavirus fears spurred the demand for the dollar on Tuesday.
  • FOMC minutes, Producer Prices, housing data, Fedspeak all due later.

The greenback, when measured by the US Dollar Index (DXY), is struggling for direction near 99.50 following the Asian trading session on Wednesday.

US Dollar Index looks to Fed, data

The monthly rally in the index appears far from abated on Wednesday after it clinched fresh YTD highs near 99.50 on Tuesday and is now at shouting distance from 2019 peaks at 99.67 recorded on October 1st.

Renewed jitters around the Chinese coronavirus (COVID-19) encouraged investors to return to the safe haven universe in detriment of recent bets favouring riskier assets, all morphing into extra wings for the buck and dragging US yields lower.

Later in the NA session, the focus of attention will be on the publication of the FOMC minutes. Seconded in relevance will come Housing Starts and Building Permits along with Producer Prices for the month of January.

Additionally, Atlanta Fed R.Bostic (2021 voter, centrist) will speak on the Economic Outlook in Atlanta, Cleveland Fed L.Mester (voter, hawkish) will speak at a Forum of Executive Women, Minneapolis Fed N.Kashkari (voter, dovish) speaks in Minnesota, Dallas Fed R.Kaplan (voter, hawkish) speaks in Dallas and Richmond Fed T.Barkin (2021 voter, centrist) will discuss the Monetary Policy Framework.

What to look for around USD

The index has extended the march north to new 2020 highs near 99.50 on Tuesday, keeping the bid bias unaltered for the time being. Investors are expected to keep looking to the performance of US fundamentals and the broader risk appetite trends for direction as well as any fresh developments from the COVID-19. In the meantime, the outlook on the dollar remains constructive and bolstered by the current “appropriate” monetary stance from the Fed vs. the broad-based dovish view from its G10 peers, the “good shape” of the domestic economy, the buck’s safe haven appeal and its status of “global reserve currency”.

US Dollar Index relevant levels

At the moment, the index is gaining 0.01% at 99.45 and a breakout of 99.47 (2020 high Feb.18) would aim for 99.67 (2019 high Oct.1) and finally 100.00 (psychological barrier). On the flip side, immediate contention emerges at 98.75 (23.6% Fibo retracement of the 2020 rally) seconded by 98.54 (monthly high Nov.29 2019) and then 98.40 (21-day SMA).