canada Markets

Global Rate Cut Bonanza Continues As Canada Takes A Swing At COVID-19

Are you listening virus?!

“While Canada’s economy has been operating close to potential with inflation on target, the COVID-19 virus is a material negative shock to the Canadian and global outlooks, and monetary and fiscal authorities are responding”, the BOC said Wednesday, in the statement accompanying a 50bps rate cut.

It’s the latest move by policymakers to drown a biological threat in liquidity and/or subject a virus to death by a thousand rate cuts. It’s an inherently futile effort, but, as the few strategists still willing to give central banks the benefit of the doubt have been keen to point out, monetary policy needs to do its part, even if all that can be accomplished is reducing the odds of credit events and keeping the vaunted “wealth effect” from slamming into reverse as stocks careen lower.

The BOC’s statement goes into a bit more detail on the global economic impact the bank sees from the outbreak. To wit:

However, COVID-19 represents a significant health threat to people in a growing number of countries. In consequence, business activity in some regions has fallen sharply and supply chains have been disrupted. This has pulled down commodity prices and the Canadian dollar has depreciated. Global markets are reacting to the spread of the virus by repricing risk across a broad set of assets, making financial conditions less accommodative. It is likely that as the virus spreads, business and consumer confidence will deteriorate, further depressing activity.

The statement closes with a pledge that Canada will continue to cooperate with other G7 central banks.

So, that makes 25bps from the RBA, 50bps from the Fed and 50bps from the BOC in the past three days. Here’s an updated map for 2020:

The 50bps move from the BOC is larger than expected (although it’s hardly a total surprise – 43bps was priced in).

Canadian yields fell in the knee-jerk, as did the loonie.

If you’re wondering whether there’s more where this came from, it’s certainly possible.

“In light of all these developments, the outlook is clearly weaker now than it was in January”, the BOC said. “As the situation evolves, Governing Council stands ready to adjust monetary policy further if required”.

Are you listening virus?!


4 comments on “Global Rate Cut Bonanza Continues As Canada Takes A Swing At COVID-19

  1. George says:

    Canada is more and more the Groupie much like it’s father the UK… Everything is in desperation mode here in the US (the ring that rules them all )… When a Biden victory on top of panic moves by the Fed is cause for a market rally of this magnitude especially when overlayed by a second Trump term we have a Political and economic Void of epic proportions..
    Like Kevin is prone to say ‘ My job is to say what will be not we want it to be’….Rosy Scenario , FOMO , and BTFD are hard birds to shoot down and so they like the Sirens that whispered to Ulysses up to the point of near madness, they continue aided by the Political , media and other allied establishments that want Power and Money above all other things. I read the data (volumes of it) just like everyone else on this site but when confronted by confusion the simple answer appears when we step back to where our eyes focus best…
    Yeah , I confess , I watched Lord of the Rings again ….

  2. Canada is a groupie to it’s father the UK????? Where the hell did that come from?

    • George says:

      Little too much creative license here…. Was referring to culture , historical ties as well as close ties in their political leanings .. They did tend to act more independently until Trudeau capitulated to Trump type politics… That entire comment was a facetious look at the state of the equity markets and its relationship to rational (well anything). The interesting part of all this….we all get to react and 20-20 hind site is our judge…We however,, have to step up and (like Charlie ) and make our predictions…

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