Emergency Fed 1% cut fails to calm markets
Yesterday, the Federal Reserve cut its benchmark rate by 1% to 0-0.25%, and other major central banks followed suit with assorted significant stimulus measures. Panicky investors responded by dumping global equities and buying US Treasuries, believing that monetary policy has now been exhausted and coordinated fiscal policies among the big nations highly likely. The dollar is higher, along with yen and Swiss franc, as demand increases for safe haven currencies. Prices of oil and other commodities are collapsing, negatively impacting commodity currencies - CAD, AUD, the South African rand and the Norwegian krone.
Monday: Empire State Manufacturing Survey (March)
Tuesday: Retail Sales (February); Job Openings and Labor Turnover (January); NAHB/Wells Fargo Housing Market Index (March)
Thursday: Bank of Japan announces monetary policy decision; US Leading Economic Index (February)
Friday: Existing-home Sales (February)
March 16, 2020
EUR/USD 1.1142 GBP/USD 1.2250 USD/CAD 1.3970 AUD/USD 0.6105 USD/JPY 105.55 USD/CNH 7.0250 USD/ILS 3.7620 USD/MXN 22.9400 USD/CHF 0.9455 USD/INR 74.2725
The Federal Reserve’s emergency interest rate cut and several liquidity provisions did not provide comfort to investors, as the Fed is thought to have now exhausted all its conventional and unconventional tools. The S&P 500 opened limit down 5%, the UST 10-yr yield is down 20 basis points to 0.76%, and the US dollar is slightly higher.GBP
The UK pound fell against all its peer currencies, as the US expanded a travel ban to the UK amid a surge in COVID-19 deaths. Traders were also reacting to a shutdown in Europe to contain the virus. The GBP/USD and EUR/GBP both fell to six-month lows. Pressure is intense on the UK government amid criticism that they have been slow to respond to the virus compared to other European countries. The FTSE equity index is down 8% today and UK Gilt yields have dropped to 0.37%, but are above last week’s low at 0.15%.EUR
The euro has gained slightly against its peers despite most of Europe under lockdown, including Italy, France, Spain, Austria, Norway and Ireland. The World Health Organization announced that Europe has surpassed China as the “epicenter” of the coronavirus pandemic. Most European equity markets are lower in morning trading between 7% and 12%. European bond yields are bouncing off lows seen earlier in the month.CAD
The USD/CAD currency pair is approaching 1.40 amid collapsing oil prices. The last time it was this high was in January 2016, when it spiked and quickly reversed from 1.4579. The Bank of Canada is expected to cut its overnight rate to 0.25% well before the next scheduled meeting on April 15. BOC Governor Poloz has said they are not ready to enact a negative rate policy.ASIA/PACIFIC
The Japanese yen rallied on market fears and is the strongest currency in the world. The Chinese yuan is only slightly weaker as China’s central bank is trying to keep a lid on market volatility by keeping its medium term loan rates steady amid lower rates elsewhere in the world.