Key Points From This Week
Bank of England Cuts Rates
The BOE became the latest central bank in the G10 space to lower its rates this week. Echoing the Fed, the BOE announced a surprise rate cut of 0.5% midweek in response to the ballooning COVID-19 situation. With the UK very shortly to go into lockdown, the BOE governor expressed concerns about the economic impact and signalled a willingness to do more if necessary.
US Orders Travel Shutdown
With festivals and events around the US being cancelled this week, President Trump escalated the fight against COVID-19 by announcing that all European travellers (besides those from the UK and Ireland) will be banned from entering the US for a 30 day period commencing on Friday. The news has fuelled more concern over the rising risk of a global recession as oil markets continue to cascade lower.
Oil Markets Breakdown
WTI prices have been hit hard this week. Crude markets gapped lower at the open on news of a breakdown in relations between Saudi Arabia and Russia which threatens to ruin the recently announced OPEC cuts. Saudi Arabia has said it will actually increase oil production if Russia does not agree to the new terms.
ECB Announces Easing
On Thursday, the ECB also announced a fresh policy adjustment. However, much to the dismay of many in the market, the bank did not cut the deposit rate – as was expected, and instead said that it will provider even cheap commercial loans to banks along with stepping up its monthly bind purchases. The move has raised concerns over how much room the ECB has to deal with the crisis if it worsens further.
Key Events Next Week
The Fed meets for its scheduled FOMC meeting next week and, following that surprise cut earlier in the month, traders will be keen to hear how the bank now assesses the situation. Many players are now looking for a further cut, urging the Fed to be aggressive early on. The guidance will also be key and the Fed is highly likely to once again highlight the severity of the situation and its readiness to ease further if needed.
The BOJ also meets next week and, in sync with the response seen across the central bank space, the market expects fresh easing to be announced. As with the ECB, however, given that the BOJ is already well into negative rates, the move is more likely to be centred around strengthened asset purchases. However, whether the BOJ still has the room to address the situation effectively is yet to be seen.
Keep an Eye On
COVID-19 Developments over the Weekend
With the situation still highly volatile, the weekend presents a lot of market risk and we could see large gaps again at the open on Sunday. Furthermore, if the situation deteriorates materially, some banks have warned that the Fed could even announce a further unscheduled rate cut ahead of the FOMC meeting.
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