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Global central bank co-ordinated interest rate cut coming on Wednesday 4 March

A coordinated global interest rate cut by the top central banks will happen this Wednesday, March 4.

  • So says economist for the U.S. bank lobby Bill Nelson, chief economist at the Bank Policy Institute
Nelson, formerly at the Federal Reserve (worked on the Fed’s responses to the 2007-2008 financial crisis):
  • It will happen before the U.S. stock market opens, either 7 a.m. or 8 a.m. ET (1200 or 1300 GMT)
  • It will be half a percentage point at least
  • “The only way to get a positive market reaction is to deliver more than expected”
  • will include “forward guidance”
Here is the link for more: Don’t keep your powder dry
A coordinated global interest rate cut by the top central banks will happen this Wednesday, March 4.

Bank of America revises global GDP forecast to weakest since 2009

Thursday note from Bank of America / Merrill Lynch

  • Project global growth for 2020 at 2.8%
  • slowest since 2009
  • Expect China to be weakest since 1990
And …
  • risks are still skewed to the downside
  • Our forecasts do not include a global pandemic that would basically shut down economic activity in many major cities
And, just thinking out loud …. does the coronavirus mean the yield curve inversion was right all along?

Here are all the changes in the FOMC statement (blink and you’ll miss it)

This is how the statement from the Federal Open Market Committee changed in January from December.

Sheesh. Not much. What there is is slightly more dovish (but its a bit of a hair-split isn’t it?)
This is how the statement from the Federal Open Market Committee changed in January from December. 

Full text of the January 22, 2020 Bank of Canada rate decision

The latest Bank of Canada decision

  • Prior statement here

Bank of Canada maintains overnight rate target at 1 ¾ percent

The Bank of Canada today maintained its target for the overnight rate at 1 ¾ percent. The Bank Rate is correspondingly 2 percent and the deposit rate is 1 ½ percent.The global economy is showing signs of stabilization, and some recent trade developments have been positive. However, there remains a high degree of uncertainty and geopolitical tensions have re-emerged, with tragic consequences. The Canadian economy has been resilient but indicators since the October Monetary Policy Report (MPR) have been mixed.

Data for Canada indicate that growth in the near term will be weaker, and the output gap wider, than the Bank projected in October. The Bank now estimates growth of 0.3 percent in the fourth quarter of 2019 and 1.3 percent in the first quarter of 2020. Exports fell in late 2019, and business investment appears to have weakened after a strong third quarter. Job creation has slowed and indicators of consumer confidence and spending have been unexpectedly soft. In contrast, residential investment was robust through most of 2019, moderating to a still-solid pace in the fourth quarter.

Some of the slowdown in growth in late 2019 was related to special factors that include strikes, poor weather, and inventory adjustments. The weaker data could also signal that global economic conditions have been affecting Canada’s economy to a greater extent than was predicted. Moreover, during the past year Canadians have been saving a larger share of their incomes, which could signal increased consumer caution. This could dampen consumer spending but help to alleviate financial vulnerabilities at the same time.

Looking ahead, Canadian business investment and exports are expected to contribute modestly to growth, supported by stronger global activity and demand. The Bank is also projecting a pickup in household spending, supported by population and income growth, as well as by the recent federal income tax cut. In its January MPR, the Bank projects the global economy will grow by just over 3 percent in 2020 and 3 ¼ percent in 2021. For Canada, the Bank now forecasts real GDP will grow by 1.6 percent this year and 2 percent in 2021, following 1.6 percent growth in 2019.

While the output gap has widened in recent months, measures of inflation remain around 2 percent. This is consistent with an economy that, until recently, has been operating close to capacity. The Bank expects inflation will stay around the 2 percent target over the projection horizon, with some fluctuations in 2020 from volatility in energy prices. Meanwhile, labour markets in most regions have little slack and wages continue to firm.

In determining the future path for the Bank’s policy interest rate, Governing Council will be watching closely to see if the recent slowdown in growth is more persistent than forecast. In assessing incoming data, the Bank will be paying particular attention to developments in consumer spending, the housing market, and business investment.

Your guide to China’s ‘big bang’ 2020.100% foreign ownership in financial industry.

China will accelerate opening up of its commercial banking and securities sectors, among others, next year.

For example:
  • foreign insurers can apply to set up 100%-owned units offering life insurance (this segment accounts for three-quarters of the Chinese insurance market)
  • from January 1 overseas firms will be allowed to set up their own entities to trade futures
  • offshore firms will be able to apply for licenses to start wholly owned mutual fund management firms in April
And, plenty more here at the link

A quick glance at the key risk events in markets this week

It is going to be an eventful week in markets despite the slower start today

Let us take a look at what else is on the agenda:

Tuesday, 10 December
– RBA governor Philip Lowe speaks at the AusPayNet Summit in Sydney
– China November CPI data
– Germany December ZEW survey current conditions, expectations
Wednesday, 11 December
– US November CPI data
– FOMC December monetary policy meeting & Fed chair Powell press conference
Thursday, 12 December
– UK general election
– SNB December monetary policy meeting
– ECB December monetary policy meeting & ECB president Lagarde press conference
– BOC governor Stephen Poloz speaks about the Canadian economic outlook for 2020
Friday, 13 December
– US November retail sales data
Sunday, 15 December
– Deadline before US tariffs on $156 billion of Chinese goods go into effect
These will be the key ones to pay attention to but there will also be other smaller data releases during the week that will also have some say to the ebb and flow of things.
As such, fret not about the lack of meaningful moves in markets so far today. Things will surely heat up over the next few days.

Its a big week coming up (FOMC, UK election & more) – Asian events to take note of also

Its a huge market week with loads of central bank decisions and more:

  • FOMC (Wednesday 11 December)
  • ECB, SNB and UK election (Thursday 12 December )
Also, take note of events in Asia that could well be significant also:
  • China inflation data for November on Tuesday 10 December
  • Philip Lowe, Governor of the Reserve Bank of Australia. speaks. Also on Tuesday
  • Bank of Japan’s quarterly Tankan survey is on Friday December 13
And, while not during market hours, Sunday December 15 will bring US President Trump’s latest mood swing decision on tariffs on China. Which should set up a volatile Monday morning (the 16th)
Its a huge market week with loads of central bank decisions and more:

Dollar weakness among the trends to watch for next year – Morgan Stanley

Strategists at Morgan Stanley view that betting on a weaker dollar will be among the top trades for 2020

Dollar

In a client note detailing the trends to keep an eye out for next year, strategists at the firm view that the dollar is to be hit by stronger global growth outside of the US and dwindling portfolio inflows.

They argue that the greenback will fall against the pound, euro and kiwi dollar while also recommending to short the dollar against the Indian rupee in the EM space.
GBP/USD
Cable should “rally sharply by Q1 2020 as an orderly Brexit path becomes clearer, prompting foreigners to lift their GBP hedges and invest in undervalued GBP assets”. Target 1.40 in Q1 2020 before ending 2020 at 1.35.
EUR/USD
“Narrowing US-Europe growth differentials” and improving political factors should see the euro rally against the dollar. Target Q1 2020 and end of the year at 1.16.
NZD/USD
Recommends taking up a long position in the pair as they see Chinese and global growth improving. Target of 0.69 by mid-2020.