March 26, 2020

Traders Eye The BOE Meeting

Traders Eye The BOE Meeting

European futures are trading lower as the French business confidence data printed a record drop during March. Sadly, in the coming days, these economic numbers are likely to become even uglier. What we are seeing now is only a starter, the main course and desserts are still to come.

So far, the European indices have enjoyed decent gains during the past two days. The Dax index eked out another 1.79% gain yesterday while the CAC 40 index clocked 4.47%. The Euro Stoxx 600 also surged 3.09%.

The US Senate passed the virus rescue plan yesterday. The bill passed from the Senate despite some disagreement and is now on its way to the House Representatives.

Nonetheless, what matters the most today is the US weekly jobless claims number which could really take the wind of out the dollar index. Today’s number is likely to be dreadful. Just how bad? It is expected that it could produce a number which could easily pass the one million mark. This means more pressure on the Fed and intense sell-off for the US markets.

The prospects of higher jobless claims, and the possibility of delay in the virus rescue package from the House of Representatives—after Bernie Sanders’ remark—are likely to adversely influence overall sentiment.

Over in the US, the Nasdaq index—the most resilient index with respect to current sell-off—fell 1.11% yesterday while the Dow Jones scored over 2.39%. Clearly, that doesn’t make sense, and one can see that the markets are a little out of whack.

The interesting element to note is that the volatility for S&P500 and the Stox600 both remain at decent levels, 63.95 and 57.13 respectively. If you look at the Dow Jones’ rally, it seems like there is no tomorrow. The surge in its price during the past two days has been mammoth. The fact is that many investors are still expecting this index to fall.

The economic disruption and the lockdown are bound to hit the UK’s economy, but despite this, the FTSE 100 index ended the day with solid gains yesterday. It surged 4.45%.

Investors have their eyes on the most important event today—the BOE’s monetary policy decision. So far, the bank has cut the interest rate twice in its emergency meetings.

It is unlikely we will see the bank shifting the needle on this, unless of course, if it is competing with the Federal Reserve where the interest rates are sitting at zero. In the UK, it is at 0.10%.

Nonetheless, it is the surprise action of central banks that shakes the core of forex markets. If the BOE throws any unexpected punches, it is likely that we will see Sterling knocked out. Currently, it is trading at 1.18 against the dollar and during the past few days, it has had a remarkable comeback after it reached the low of 1.1412 on the 20th March.

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