Fed Emergency 50bp Rate Cut
As the Coronavirus outbreak continues to expand its global reach and put further uncertainty in the markets, two important indicators led to a pessimistic view last week, the Fed delivered an emergency 50bp rate cut and OPEC+ failed to agree on further production cuts.
Last week the Federal Reserve shocked the markets with a complete surprise, an unexpected emergency rate cut of 50bp. It was quiet shocking as the most recent macro data in the US had been rather positive but it seems the Fed wanted to reassure the market of the imminent coronavirus outbreak and its negative effects on the economy.
Now all other central banks have taken notice to the Feds move, the probability of interest rates globally is expected to move lower and some even forecasting most major central banks globally could be in negative rates by the end of the year.
Towards the end of last week, oil prices had slid lower to $30 a barrel. The OPEC+ meeting had taken place in Vienna and the initial expectations were not met as they failed to agree on further production cuts.
The coronavirus continues to spread with over 100,000 cases confirmed. Recent data reported from China shows a decrease in the number of cases compared to prior weeks and months but we are seeing Covid-19 gain speed elsewhere with the largest jump in cases in Iran and Italy. Reports over the weekend stating the government has put in place a quarantine of 16 million people in Northern Italy.
Equities were extremely volatile last week, reactions following the Fed’s emergency rate cut had not helped spur on the economy but the opposite with panic amongst its participants. It seems having a loser monetary policy does not solve what seems an overpowering coronavirus. The only positive news for the equity market came from Joe Biden’s stunning super Tuesday surge in voters and dominated 9 out of the 11 contests.
Precious metals remained bid as equity prices continued its downward spiral and increases to monetary easing. Cryptocurrencies remain lacklustre as a brief rally did take place as risk aversion continued, but most of the gains had been given back.
We are expecting a continuation in volatility this week, the coronavirus spread rate will be viewed as market participants will want to take note whether it is picking up pace especially in the Eurozone and US. Central Bankers will continue to loosen monetary policy to counteract the coronavirus but its hard to determine if this will have the desired effect. It will be largely the governments of major economies which will be in focus as how they plan to deal with the coronavirus and the fiscal package they set is what will determine its impact.
The Weekly View
No major events
1.30am – China CPI (February): current forecast expected to see a 5.9% growth in prices for February, but as with all recent China data the actual figures could differ wildly. Markets to watch: China indices, CNH crosses
10am – eurozone GDP (Q4, 3rd estimate): YoY growth to be 0.9% and QoQ 0.1%. Markets to watch: EUR crosses
11.30pm – Australia Westpac confidence index: forecast to rise to 96 from 95.5. Markets to watch: AUD crosses
9.30am – UK balance of trade, GDP (January): trade deficit to narrow to £3.7 billion, while GDP to hold at 0% over the three months to January. Markets to watch: GBP crosses
12.30pm – UK budget: this will unveil the government’s spending plans for the year, and is expected to see a big rise in spending for UK regions. Markets to watch: FTSE 100/250, GBP crosses
12.30pm – US CPI (February): CPI to rise by 2.4% YoY and 0.2% MoM, and core CPI to increase by 2.2% YoY. Markets to watch: USD crosses
2.30pm – US EIA crude inventories (w/e 6 March): stockpiles rose by 785,000 barrels last week. Markets to watch: Brent, WTI
12.30pm – US initial jobless claims (w/e 7 March): previous week’s reading 216K Markets to watch: USD crosses
12.45pm – ECB rate decision: a possible rate cut is in focus here, as the global economy deals with the coronavirus. Other possible remedies may include support for small and medium-sized businesses. Markets to watch: eurozone indices, EUR crosses
2pm – US Michigan consumer confidence (March, preliminary): forecast to fall to 90.5 from 92.1. Markets to watch: USD crosses