Yesterday was another roller coaster ride in financial markets which saw stock indexes bounce back from their worst day since 2008. Much of the positive movement was based around the prospect of another tax cut in the US.
President Trump floated the idea on Monday evening of introducing a payroll tax cut for the duration of the year. This took markets by surprise and allowed them to rack up healthy gains of around 3% – 5% on the day.
In respect to the foreign exchange markets, the risk-on day had the expected impact on safe haven currencies. The Japanese yen retreated 2.5% against the buck while the Swiss franc also lost considerable ground. The euro, which saw strong flows back into it recently as carry trades unwind, fell 1.5%. The pound plunged a similar amount too.
Overnight, fear has risen its ugly head once again as stocks give back some of yesterday’s gains. Concerns over the increased spread in the west, as well as scepticism over the potential for Trump to push through more tax cuts, are the likely culprits for the shift in sentiment.
The Bank of England has now joined the group of central banks easing monetary policy. The Bank has lowered rates by 50bps to 0.25%. The pound, at the time of writing, has sold off 0.25%. Such a move was likely priced-in to a large degree.
Today’s focus remains on the virus spread and the actions governments and central banks will take. The UK government presents its first budget since the election. This takes place at lunchtime today.
Written by Viv Savani. 3:08pm, March 11th 2020
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