Bank of England Makes Emergency 50bps Rate Cut


4,896 new cases of COVID-19 were confirmed globally on Monday with only 19 of the cases being in China as the spread takes its toll on the rest of the world. More than 4,200 people had succumbed to the virus as at Tuesday with about 119,000 globally confirmed cases. Cases in Italy surged beyond 10,000 with 631 deaths making it the worst hit country globally with a 6% fatality rate. Elsewhere, Jamaica recorded its first case of infection as US cases topped 1,000 and the UK’s health minister Nadine Dorries tested positive for the virus.


US stocks closed sharply higher on Tuesday as the White House pushed for Congress to approve a stimulus package to alleviate the economic impact of the coronavirus. While no specifics have yet been detailed, President Trump met with Senate Republicans earlier in the day to discuss the issue. The NASDAQ gained 4.95% while the S&P and the DOW rose 4.94% and 4.86% respectively. Treasury yields closed higher with 2Y and 10Y USTs closing at 0.5342% (+15bps) and 0.8030% (+26bps) respectively.


The Bank of England made an emergency 50bps cut to the benchmark rate to 0.25% in a response to the coronavirus. The cut, made following a unanimous vote in a special meeting which ended on Tuesday, was made as the BoE noted a “marked deterioration” in risk appetite and outlook for UK growth. The cut comes just as Chancellor Rishi Sunak presents his budget later on Wednesday where there are high expectations of a large rise in public borrowing to fund a spending push. The pound closed weaker at $1.2911 while yield on 10Y and 30Y UKTs closed higher at 0.240% and 0.566% respectively.


Italy is preparing to increase its fiscal stimulus programme for the fourth time in a month as the country reels from a surge in COVID-19 infections. Prime Minister Giuseppe Conti is planning to double the existing stimulus package to as much as €16 billion rules as the EU relaxes its budget rules to help member states fend off the virus. European Commission President Ursula von der Leyen announced after a video conference with EU leaders that guidelines for the relaxed rules will be produced at the end of the week. The euro closed weaker at $1.1281 while yield on 10Y BTPS closed lower at 1.3251%.


Asian stocks were mostly lower on Wednesday as despite the expected move by the US to cushion the economic pain of the coronavirus. The ASX led the slide, down 3.59% while the NIKKEI and the HANG SENG closed 2.27% and 0.63% lower respectively. The CSI was however significantly higher, closing 4.95% up.


As Lebanon prepares to engage the IMF over a bailout programme, the government is also working on another economic reform plan which does not involve foreign aid – a very likely scenario as the powerful Hezbollah coalition is strongly opposed to measures the IMF may want implemented. Speaking after a cabinet meeting, the Information Minister said the government will assess the fixed exchange rate as well as seek to achieve a primary surplus in 2020. The latter may prove quite the challenge as the Finance Ministry expects inflows from diasporan Lebanese to decline sharply in 2020 and 2021. Bank deposits for foreign-denominated accounts shrank by $1.8 billion in January following a drop of $15 billion in 2019.


Brazil’s central bank is set to lower its 2020 growth forecast in the upcoming quarterly inflation report due for release on March 26; the bank had upped the forecast to 2.2% from 1.8% in December. The downward revision comes as the coronavirus has hit Chinese demand as well as disrupted supply chains. Reports of the expected revision come despite industrial production having risen in January although the impact of the coronavirus hadn’t fully emerged yet. Production for the month rose 0.9% from December output, above a 0.6% median estimate from a Bloomberg survey; YoY, output contracted 0.9% however. Of note, capital goods – a barometer of investment – rose 12.6% in the month with 17 of the 26 monitored sectors recording gains in the month. The real closed firmer at 4.6428 to the dollar while BRAZIL 50s were higher, trading in the mid 106s.


Russia’s feud with Saudi Arabia over oil prices appears to be showing no signs of slowing with Russia pledged to up its output by 500,000 barrels per day. The move, announced by Russia’s Energy Minister, followed an earlier announcement by Saudi Aramco that it would start supplying 12.3 million barrels per day in April. The hike, some 25% above February production levels is above Aramco’s maximum capacity, indicating that reserves will be tapped. Other OPEC members followed suit with Iraq saying it would add 350,000 more barrels and Nigeria adding 100,000 more. Oil rebounded nonetheless, closing at $37.22 a barrel on Tuesday and 8.3% above Monday’s close.


The plunge in oil prices has resuscitated talk of a devaluation of the naira as declining export revenues piles pressure on foreign reserves. Reserves have fallen 20% from their 2018 highs and may reach the $30 billion threshold set by the central bank to consider devaluation. The naira closed at 366.63, the highest in over 2 years as the fallout from falling oil prices hit the country’s assets. The all-share index for the Nigerian Stock Exchange plunged 4.92% on Tuesday, while NGERIA 49s continued their slide trading in the high 88s as yields rose 35bps.