LONDON, March 11 (Reuters) - A look at the day ahead from EMEA deputy markets editor Sujata Rao. The views expressed are her own.
The Bank of England shocked markets this morning with a 50 basis point rate cut but will it save the day? The cut was the first move to take place outside the BoE’s normal schedule since the 2008 financial crisis, and takes Bank Rate back to the record low it reached after 2016’s Brexit referendum. The BOE also lowered a counter-cyclical capital buffer for banks to zero from 1% and launched a new scheme to support lending to small businesses in an attempt to keep credit flowing.
The bank move comes a few hours before the British finance minister presents his budget that is expected to expand spending. Sterling dropped one cent against the dollar but has since retraced that fall as the dollar remains under heavy pressure. Against the euro though it is down 0.7% to the lowest since October and FTSE has jumped, and that includes bank shares which are up around one percent. Possibly the thought of fiscal stimulus is outweighing the hit from lower rates.
In Europe, equities in Germany and France and elsewhere are opening higher after initially signalling weakness. U.S. equity futures are still down 2% however, following a 5% jump last night. Sentiment in Asia was also undermined by a rise in coronavirus cases in China and South Korea after days of declines – mainland Chinese shares fell 1%, the Korean won is down 0.7%. World shares have edged 0.1% lower.
At least 16 countries have kicked in with fiscal or monetary stimulus since the virus started spreading outside China. But the challenge for policymakers now is they need to go big or go home.
Markets overnight slipped after the “major steps” promised by President Trump to back up the U.S. economy failed to impress investors. There is more on the way with European Commission unveiling a slew of measures, including a 25 billion anti-coronavirus fund while Denmark extended deadlines for VAT and payroll taxes. There are signs Italy will get the green light to expand spending.
Britain’s long awaited budget is presented at 1230 GMT. Britain and Brexit had become almost a sideshow amid the turmoil but today it, and finance minister Rishi Sunak, take centre stage. The expectation is for investment spending to rise to 3% of GDP or around 20 billion pounds. But essentially what we have now is a tug of war: On one side, borrowing costs that are rock-bottom and falling and the promise of fiscal stimulus from a raft of governments including the United States, China and Japan. In the other corner, there is fear – of the virus spreading, the prospect of places such as London or New York in a Wuhan-style lockdown, of worse than expected growth and companies that run out of cash to pay creditors.
On currency markets the dollar is starting to stabilise, having earlier resumed its descent against safe-haven currencies. The yen is now up 0,6% to the dollar, having earlier risen as much as 0.8% and the euro has pared gains too.
On bond markets, gilts have responded to the BOE move with a yawn – two-year maturities are flat while 10-year yields have actually risen.
In European stock markets, French healthcare company Biomerieux may make some gains after announcing the launch of three tests to help fight the coronavirus. Many more coronavirus-led headlines on the grim side: Adidas said it expects first-quarter sales to drop by up to 1 billion euros in greater China while another German group, Knorr Bremse said it would take a 60 million euro revenue hit in February due to the virus epidemic in China. Specialty chemicals maker Lanxess expects core profit to drop in 2020 due to the epidemic.
Elsewhere, shares in Swedbank are up even though the bank said investigation of its work on anti-money laundering by law firm Clifford Chance had found that transactions totalling around $4.8 million constitute potential sanction violations. The investigation is part of a probe into its role in a Baltic money laundering scandal. In M&A news, Fincantieri risks an EU antitrust veto against its bid for Chantiers de l’Atlantique because of the difficulty of addressing regulators’ concerns. (Reporting by Sujata Rao; Editing by Nick Macfie)