Daily Market News: BoE slashes rates in emergency cut as global markets assess virus spread

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Adam Vettese, UK Market Analyst at eToro, has provided his daily commentary on traditional and crypto markets for March 11, 2020. 


In the UK this morning, the Bank of England cut interest rates by 50 basis points to 0.25% in a near unprecedented step, taking them back to a record low level not seen since the financial crisis.

Reacting to the expected fallout from the coronavirus, the Bank unanimously voted for the cut, and also said it would relax capital rules to help support borrowing. Mark Carney did not announce any expansion of bond purchases, perhaps leaving the Bank with another card to play should the situation worsen.

Celine Hartmanshenn, Global Head of Risk at Stenn Group, an international provider of trade finance headquartered in the UK, comments on the BoE’s decision to cut interest rates to 0.25% as an emergency measure:

“The Bank of England has wasted no time cutting rates to near rock bottom levels. But while it may bring some benefit to consumers and heavily indebted companies, lowering interest rates is unlikely to help prevent the economic wrath of the coronavirus. We saw this already in the trade war. Lowering rates helps the stock markets, which will become more relaxed now, but the real economy isn’t the stock market.

“It’s unlikely that indebted companies, those in need of financial support, will be unable to access further loans from banks, as they’ll be looking at ratios of balance sheets, and there is an end of the line which was reached way prior to the trade war. These companies will now need to look to private lenders and alternative finance providers instead.

“Cheaper money also won’t have much effect in a supply shock. Manufacturing is where we will see one of the biggest crunches, and will cause the economy to dip. The volume of goods being produced is lowering, as factories in China, usually in a dominant manufacturing position, are operating at about 50% of the workforce. This will have a ripple effect around the world, not just in the UK but emerging markets who rely on China for goods.

“The ECB is due to report tomorrow and we’re expecting a reduced rate also, but it’s a mistake for central banks to use Coronavirus as an excuse to lower interest rates. It would be more effective for governments to introduce temporary tax breaks, new loan programs, or other financing to companies hurt by the virus. This is all about raising stock prices and lowering borrowing costs. The measures put forward by the world’s bankers can’t keep workers from getting sick or factories from closing.”

Richard Flax, Chief Investment Officer at Moneyfarm, adds:

“The decision by the Bank of England to cut interest rates was a predictable but sensible monetary policy response. It remains to be seen how effective it will be in terms of lowering borrowing costs in the economy, given the low starting level of rates. However, it does represent a clear signal to financial markets that policy makers are willing to act decisively and we expect to see more policy measures, both in regards to fiscal and monetary policy, in the near future.”

Dr Ivan Petrella, Associate Professor at Warwick Business School and an expert in economic policy, said:

“This is a timely move by the Bank of England, taking a number of preemptive measures aimed at supporting the economy in the face of the Covid-19 epidemic.

“This includes a 50bp cut to interest rates, but more importantly, a new Term Funding Scheme with additional incentives for small businesses and countercyclical capital buffer. These actions provide liquidity and much-needed support for SMEs, which are most vulnerable to the Covid-19 shock.

“The timing, ahead of the measures expected in the 2020 Budget, gives a clear indication that UK policymakers are ready to make a coordinated effort to support the economy.

“The fact that fiscal and monetary policy will be singing the same tunes will certainly be welcomed by the markets.”

UK stocks have seen choppy trading since the announcement, going 2% positive before giving up all of these gains to trade flat. US futures are all indicating a >2% dip on the open, and gold continues to hold firm around $1,660 with safe haven demand still strong.

The oil price gave up some of yesterday’s gains today as Saudi Aramco was ordered by the energy ministry to increase its output by a million barrels per day. This could put ongoing pressure on the price as the coronavirus continues to spread in developed economies which are big consumers of oil. It was hoped that continued containment of the virus in China might rekindle some demand, but with Saudi Arabia increasing capacity and also with a glut of reserves, it could be awhile before the price stablises.

We saw another dramatic day in the US where stocks snapped back sharply, with the major indices turning in a 5% up day, led by oil stocks and airlines. Delta Airlines and American Airlines followed United in announcing significant flight cuts and cost saving measures in response to reduced demand as a result of the coronavirus epidemic. On Tuesday, President Trump also said that the government plans to aid the airline and cruise industries. On the day, United and American’s share prices climbed double digits, while Delta gained 4.5%.

The corporate response to the epidemic also continues, with Google asking all of its employees in North America to work from home for the next month. While in the UK, business events firm Informa is postponing or cancelling more than 100 events worth £450m.

Only 29 S&P 500 stocks are up over past month

The S&P 500, Dow Jones Industrial Average and Nasdaq Composite all closed around 5% higher on Tuesday, with the Dow remaining the worst performer year-to-date with a 12.3% loss. The Wall Street Journal highlighted that only 29 stocks in the S&P 500 have posted a positive gain over the past month, with many of those being firms that have seen a jump in demand because of the epidemic. Regeneron Pharma has gained 19.7%, as it is one of the firms at the leading edge of finding a treatment for the COVID-19 virus, while supermarket giant Kroger is up 14.6% thanks to stockpiling shoppers clearing its shelves.

Interestingly, one of the names near the top of the list is Cabot Oil & Gas, thanks to expectations that the oil price collapse will be beneficial for the price of gas – which is the vast majority of Cabot’s business. Its share price is up 14.8% over the past month.

In the S&P 500 on Monday, it was Marathon Oil that posted the biggest percentage gain of the day, at 21.2%, but the rebound came nowhere close to making up the nearly 50% drop it suffered on Monday. Brent Crude advanced to almost $39 a barrel on Tuesday.

The other major news on Tuesday was Joe Biden’s continued surge in the race for the Democratic nomination. After winning Michigan, Mississippi and Missouri, Biden has cemented his position, with Sanders fading away.

  • S&P 500: +4.9% Tuesday, -10.8% YTD
  • Dow Jones Industrial Average: +4.9% Tuesday, -12.3% YTD
  • Nasdaq Composite: +5% Tuesday, -7% YTD

UK stocks left out of bounceback

On Tuesday, the index posted an almost completely flat day, remaining in bear market territory. BP and Royal Dutch Shell, two of the biggest drags on the FTSE 100 on Monday, gained 3.4% and 3.3% respectively – roughly in line with how far the price of oil advanced on the day.

Despite cancelling or postponing events worth hundreds of millions of pounds, Informa was the top stock in the FTSE 100, climbing 6.4% as it also reported better than expected profit figures for 2019. At the bottom of the FTSE 100 were energy names SSE and National Grid, which sank 4.8% and 4.5%, pushing the latter’s dividend yield up to the 5% mark.

In the FTSE 250, Domino’s Pizza Group was among the top performers on Monday, gaining 8.4%. The stock has held up well against the coronavirus epidemic compared to the broader market; it is up 3.3% over the past month and only down 3.6% year-to-date. At the other end of the spectrum Premier Oil and Cairn Energy, both oil exploration firms, continued to plummet despite the small recovery in the price of oil. Premier fell 12.3% taking it to a 60% plus loss this week so far, while Cairn sank 15.9% for a loss of 42% for the first two days of the week.

  • FTSE 100: -0.1% Tuesday, -21% YTD
  • FTSE 250: 0% Tuesday, -19.8% YTD

What to watch

UK spring budget: Today at 12:30pm will be the first Budget delivered by the new British Chancellor Rishi Sunak, and the first for Boris Johnson’s majority Conservative government. A package of measures to help soften the economic blow of coronavirus is anticipated, as are new tax and pension policies, and significant infrastructure spending. Investors will be watching closely for the government to flesh out the relatively sparse details in the Conservative Party manifesto. One option reported to be on the table in terms of the UK’s response to the coronavirus is breaking current fiscal rules and increasing borrowing.

Trainline PLC: UK-listed ticketing platform Trainline will release their full year results tomorrow and, whilst coronavirus cases in the UK are relatively limited at present, they are increasing. Travel has been among the hardest hit sectors as people choose not to make journeys if at all possible. The company will undoubtedly have something to say as to how the outbreak will affect sales going forward, particularly as the company is still nursing losses from the cost of their IPO last June

Crypto corner

Amid the wave of stimulus to combat the coronavirus epidemic, cryptoassets remain in the doldrums as investors jump in and out of equities and government bonds.

This morning Bitcoin was down 1.8% at $7,840, its lowest level since January, while Ethereum remains under the $200 mark at $198. XRP is also holding around its recent low of $0.20 as investors digest moves in other markets.

In response to the volatility, major options exchanges have seen their volume records broken significantly as traders look to hedge their positions using derivatives.

Earlier this week, US Congressman Paul Gosar announced a bill called the Cryptocurrency Act of 2020 with the aim to take steps towards legitimising and regulating crypto in the US. However, critics have said the bill is likely to fall flat, just as the many other crypto initiatives that were presented to government or regulators have done before it.


All data, figures & charts are valid as of 11/03/2020. All trading carries risk. Only risk capital you can afford to lose.

This is a marketing communication and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to buy or sell, any financial instruments. This material has been prepared without having regard to any particular investment objectives or financial situation, and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past performance of a financial instrument, index or a packaged investment product are not, and should not be taken as, a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared utilizing publicly-available information.

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