Will the Bank of England announce more QE?

With the £200bn of bond purchases it announced at its emergency meeting in March, the Bank of England has so far succeeded in calming the gilt market and ensuring the UK government can fund its crisis stimulus package at cheap rates. But the majority of analysts think the BoE will soon have to scale up its quantitative easing, possibly as soon as Thursday’s scheduled meeting.

The central bank has bought £70bn of assets since the programme was announced on March 19 — double the rate of purchases seen during the financial crisis, according to Paul Dales of Capital Economics. At the current rate the BoE will complete its purchases by the end of June and may need to announce more to convince investors that the huge issuance coming from the government can be digested.

“This creates something of a dilemma for the bank,” Mr Dales said. “If the market is sufficiently reassured by the bank’s pledge that it will do more if needed, then gilt yields may stay low regardless and the bank may not actually need to expand QE. But equally, the bank may not be brave enough to do nothing and wait to see if gilt yields spike after it has completed its asset purchases, as by then it may be too late.”

Analysts at Citi expect BoE governor Andrew Bailey, who succeeded Mark Carney in March, to announce a further £200bn of QE on Thursday, or at least provide “a strong signal” in that direction for the June meeting.

Citi said: “Without further QE, the price-sensitive private market would likely require significantly higher yields to absorb issuance. The BoE is unlikely to test this in the middle of a crisis.” Tommy Stubbington

Will US unemployment surpass financial crisis highs?

A wave of lay-offs is expected to push US unemployment for April beyond the rate seen during the financial crisis and closer to levels experienced during the 1930s, when monthly figures are released on Friday.

Record amounts of jobless claims over the past six weeks have pushed the total to more than 30m, as businesses shed staff to grapple with the economic effects of the coronavirus pandemic.

US nonfarm payroll employment is set to fall by 22m in April compared with a drop of 701,000 in March, according to estimates from 10 analysts polled by Bloomberg. This would mark the biggest decline since records began in 1939. However, the April numbers are inflated because the last survey period for non-farm payrolls ended on March 12.

The data will be released on the same day as the US unemployment rate, which analysts estimate will soar to 16.3 per cent, up from 4.4 per cent in March. This would be the highest rate since at least 1948, which is as far back as monthly data from the Bureau of Labor Statistics stretches. On an annual basis it would be the highest since 1939, according to records from the Bureau of the Census.

Chris Rupkey, chief financial economist for MUFG Union Bank, said the job losses were weighing on consumer confidence and the economy, and should make investors question the rally in US stocks over the past month.

“It will be an uphill battle,” Mr Rupkey said. “Time will tell if consumers’ reduced appetite for goods and services can keep corporate earnings at levels that justify current stock market valuations.” Richard Henderson

Will the Aussie dollar benefit from the RBA’s ‘less loose’ stance?

The Australian dollar was one of the biggest beneficiaries of the rebound in risk appetite last month, after plunging to its weakest level against the US dollar since 2003 in March. As a result, the currency has plenty to lose if the Reserve Bank of Australia defies market expectations that interest rates will stay on hold at its policy meeting on Tuesday, and opts instead for a cut from the current 0.25 per cent.

The RBA is one of few central banks around the world with a relatively hawkish stance because it has already started tapering the programme of asset purchases it began in March, when it tried to boost the flow of credit. By contrast, the central banks of Europe and the US have both been engaged in heavy quantitative easing measures.

Still, while that stance could benefit the Australian dollar over the long term, the short term is likely to remain volatile.

The currency, which is traditionally sensitive to global growth prospects, seems to have become more closely linked to the mood of the market since the coronavirus crisis began. Mark McCormick, global head of currency strategy at TD Securities in Toronto, said the Aussie had become “one of the critical barometers of global health.”

In recent days it has been trading at just below $0.65, after dropping as low as $0.57 in March. But it remains about 7.5 per cent weaker than at the start of the year.

Mr McCormick noted that the central bank’s move to taper asset purchases made its policy “less loose” than elsewhere. Eva Szalay

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