Thursday, March 12, 2020

Asia Times: BoE makes 50bps emergency rate cut; Trump announces stimulus package to support businesses in the US

Tags
  • Dollar
  • Gold
  • Yen
  • Stocks
  • Oil
  • Bank of England

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Market Recap: BoE makes a 50bps emergency rate cut; Trump announces stimulus package to support businesses in the US

Stocks in the US tumbled back down on Wednesday, pushing the Dow downwards to enter bear market territory. The Dow fell to be 20.30% lower from its all-time high, with Boeing shares weighing on the index the most by plunging 18.15% to US$189.08 per share. A slew of bad news on Wednesday contributed to the reversal of Tuesday's gains. The WHO declared the coronavirus outbreak a pandemic, increasing uncertainty in the global financial market. US President Donald Trump failed to announce the details surrounding his expected fiscal stimulus on Wednesday, although his national address at today at 9am (GMT +8) revealed them.

All 11 sectors of the S&P500 fell more than 3.50% with the exception of the real estate sector. The industrial sector fell the most followed by the financial sector, declining 5.95% and 5.52% respectively.

Indexes Daily Change (%) Net Change Closing Price
Dow Jones -5.86% -1,464.94 23,553.22
S&P500 -4.89% -140.85 2,741.38
Nasdaq -4.70% -392.20 7,952.05
*Source: Bloomberg

Trading in the forex market was relatively muted compared to earlier this week. Yen made up for losses on Tuesday as demand for low risk assets returned. The greenback and euro were relatively mixed as well, as traders wait on Trump's proposed fiscal stimulus amid the coronavirus outbreak and the ECB's likely rate cut and possible targeted measures later today to help relieve the European economy amid a rapid spread of the virus in the bloc.

Sterling lagged the most after an emergency rate cut by the BoE after British Finance Minister Rishi Sunak announced the UK's budget for 2020. The BoE cut rates by 50bps to 0.25% in an emergency rate move that was part of a coordinated action from the UK to combat the impact of the coronavirus. Of the announced 30bn pound stimulus package, 5bn pounds will be an emergency response fund while 2bn pounds will be used to support businesses and individuals amid the coronavirus outbreak.

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Safe haven assets were mixed, with gold and longer-term US Treasuries falling while the yen and 2-year Treasuries advanced. Benchmark 10-year yields rose 6.7bps to 0.87% as a result.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -0.87% -14.36 1,635.04
Silver -0.82% -0.14 16.68
JPY +1.04% +1.10 104.54
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -1.5 0.52%
10-Year +6.7 0.87%
30-Year +11.2 1.39%
*Source: Bloomberg

Oil fell on Wednesday in what is likely to be a volatile week. OPEC revised its oil demand forecasts downwards as a result of the virus outbreak to expect effectively no growth in global oil demand. The UAE has also reportedly signalled plans to produce at maximum capacity next month, further dampening the outlook for crude oil prices. Brent crude oil futures fell 3.84% or US1.43 to US$35.79 per barrel.

Oil Futures Daily Change (%) Net Change Closing Price
Brent Crude -3.84% -1.43 35.79
WTI Crude -4.02% -1.38 32.98
*Source: Bloomberg

The outlook for Asia on Thursday looks bleak. The emergency rate cut from the BoE has cemented to investors the potential negative impact the coronavirus can have as major governments and central banks attempt to relieve the global economy through coordinated actions. The Nikkei, KOSPI and ASX200 were all more than 1% lower in the first hour of Thursday's trading session.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei Index -2.64% -511.76 18,904.30 8:34:40 AM
KOSPI Index -1.31% -24.95 1,883.32 8:54:40 AM
ASX200 Index -1.78% -101.87 5,624.00 8:54:36 AM
*Source: Bloomberg

Trump’s national address to the market likely rattled investors, pushing the Japanese yen higher against the greenback after announcing a suspension to all travel from Europe for 30 days in a response to curb the spread of the coronavirus in the US. The travel restrictions will go into effect on Friday at midnight in the US and will not apply to the UK. Trump also laid out his plan to combat the virus, asking Congress to deliver paid sick leave to hourly workers and to defer tax payments for individuals and businesses affected by the virus. He also said that he is asking the Small Business Administration to provide emergency capital to affected firms.

The ECB's monetary policy decision will be the highlight of the day, but a rate cut has already been priced into the financial market and will not be enough to appease investors. A possible targeted measure was signalled by the ECB in a statement earlier last week and traders will be looking out for a possible stimulus package aimed at SMEs.

Economic releases for the day ahead include (GMT +8):

  • ECB Monetary Policy Decision (8.45pm)
  • ECB President Lagarde's speaks on Monetary Policy Decision (9.30pm)