Key Points from This Week

RBA Cuts Rates

It’s been a very busy week for central banks in the G10 space. The RBA was the first to pull the trigger on a rate cut at the start of the week. Citing the increased downside threat from coronavirus, the RBA lowered interest rates to a fresh record low of 0.5% and signalled a readiness to ease further if necessary.

Fed Cuts Rates Unexpectedly

The main story of the week was the surprise move from the Fed. Tow weeks ahead of the scheduled mid-March FOMC meeting, the Fed announced a 0.5% rate cut in order to help buffer the economy against the COVIS-19 threat. The market was already pricing in a rate cut for the March meeting and traders will now be monitoring incoming data and comments to gauge whether the Fed will move again at the meeting. Even a set of better-than-expected labour market data on Friday (NFP and unemployment rate both improved) could help USD turn around.

BOC Cuts Rates

Following the surprise move from the Fed, the BOC was the next bank to cut interest rate. The BOC again dropped rates by 0.5% to 1.25%. Citing the increased risk from COVID-19 the BOC also signalled that it would ease further

OPEC Increases Production Cuts

Along with the action from central banks, OPEC also announced fresh measures this week. In response to the heavy sell off in WTI, due in part to the COVID-19 impact, OPEC announced that its 14 members will cut oil production by a further 1.5 million barrels per day through the second quarter of the year. Notably, Russia and other non-OPEC members have yet to agree to the deal.

Key Events Next Week

Chinese & US Trade Balance

Chinese and US trade balance data next week will be closely watched amidst the ongoing COVID-19 outbreak. Incoming data this month will start to give a clearer picture of how global economies have been impacted by the virus and any significant distortions in trade data next week could have important consequences for US/China trade negotiations.

US CPI

Following the Fed’s surprise rate cut this week, next week’s CPI print will be closely watched. If we see any significant downside, easing expectations ahead of the March FOMC will likely creep up, pulling the Dollar down further.

ECB Meeting

In the wake of three central bank rate cuts within the G10 bloc this week, the stage is now well set for the ECB to announce further easing. What form this easing will take is currently under debate given that the ECB is already well constrained extreme policy levels. Given the threat from COVID-19 however, further measures, or adjustments to current operations are expected.

Keep An Eye On

COVID-19 Developments

The virus continues to dominate news-flow and next week looks likely to be the same. Pay special attention to equities markets on any further news of business closure in the UK and Europe. Nike, Apple and Sony each announced that they are temporarily closing offices in London during the outbreak. Airline Flybe reported bankruptcy this week amidst a loss of bookings due to the virus. In all, this is creating a very pessimistic atmosphere and is likely to weigh further on risk appetite despite the boost in stimulus from central banks.

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