Asian and European stock markets kicked off the week with intense recovery, with 10-year US Treasury bonds bouncing off a record low of 1.049%. The biggest factor of market buoyancy were expectations of a coordinated response from global central banks, as it happened in 2008.

The Fed is expected to cut the interest rate by 0.5%. There are also expectations that the Fed will not wait for the meeting and deliver a kind of emergency rate cut (done earlier than on the meeting), which theoretically should also have a “bonus” in the form of a positive shock in expectations. This, in turn, will allow the stock market to recover faster and the household concerns regarding declining wealth (stock portfolio dropping in value) won’t develop to the point where they can reverse the crucial positive trend in the US household consumption.

Chances for a rate cut of 50 bp, according to the futures market, rose from 77% on Friday to 100% on Monday, which suggests that the interest rate will be reduced almost sure. The only question is when this will happen and whether other central banks will take part in it. The most likely scenario is Powell’s signal this week that the Fed is ready to cut rates at the March 18 meeting. A more aggressive measure would be an emergency rate cut, ignoring possible criticism of a panic reaction. Well, the most powerful response will be the coordinated action of the world Central Banks, however, according to interest rates in the Eurozone money market, the ECB will refrain from lowering the rate at the meeting on March 12, but will probably do so a little later, in April. Accordingly, there is a bias in easing in favor of the aggressive Fed, which explains weakening in the dollar (as expected). Euro rose half percent against the dollar today, USDJPY and USDCHF remained in the downtrend too.

Nevertheless, medium-term EURUSD downtrend is likely to remain unmoved and the likelihood of returning into the channel after a possible breakthrough of the upper bound is more likely than demolition of it, which reflects the Eurozone's vulnerability to slowing trade with China, weak position in the global supply chains and declining global demand for cars (one of the key exports of Germany).

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Chinese data on Saturday indicated a sharp slowdown in manufacturing activity, worse than expected by the market. PMI in the manufacturing sector fell to 35 points (forecast 45), in the non-manufacturing sector - to a shocking 29.6 (expected 50). Caixin's private manufacturing PMI was less pessimistic - 40.3 points (forecast 46).

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