Key points From This Week

Coronavirus Outbreak

Most of the week was dominated by news of the outbreak of a strain of virus from the SARs family in China. The virus was first reported in Wuhan China but quickly spread around the country and across Asia. In the middle of the week it was reported that nearly 20 people have died while around one thousand have been infected with the virus which has now spread to the US and is suspected to be in the UK. If the virus reaches the same level as the SARs outbreak in 2003 the economic impact could take a toll on risk appetite.

Dovish Shift From BOC

The Bank of Canada met for its first rates meeting of the year this week. While the BOC kept rates on hold as expected, the bank’s message was notably more dovish with the bank cutting its GDP targets for this year and next in light of the ongoing data weakness. The market is now pricing in a rate cut in the near future, further supported by the release of weak CPI data on the morning of the meeting.

ECB Launches Strategy Review

At the ECB’s first 2020 meeting, again, rates were kept on hold as expected. At the meeting, Lagarde announced the start of the bank’s year long strategy review, which includes more detailed parameters around the ECB’s 2% inflation target. However, the ECB head was keen to warn the market that the bank’s monetary policy is not on auto-pilot during the year and the bank will continue to monitor the economy, essentially keeping the door open to further easing if necessary.

Key Events Next Week

January FOMC

The Federal Reserve meets for its January meeting next week. While no change in policy is expected, the market will be keen to hear the bank’s latest assessment for any signs that the bank is becoming more or less dovish. In December, rates were kept on hold though the Fed did warn that it would be monitoring incoming data with a view to deciding on future policy. Of particular interest will be how the bank addresses the US-Sino trade deal which was signed earlier this month.

January BOE Meeting

The BOE meets next week also and dovish risks have visibly grown. Carney himself recently comments that a rate cut might be necessary to help buffer the economy given that the anticipated post-Brexit rebound might not occur this year. With key data sets continuing to show weakness and with Carney’s term as BOE governor over in March, there is a real risk of a rate cut at this meeting.

Keep An Eye On


While the market impact has been fairly contained so far, the Wuhan virus, as its also been called, has the potential to impact asset markets if the spread worsens. While testing is currently underway in the UK, nothing has been confirmed yet. However, if the virus is confirmed to have spread to the UK, with a case already confirmed in the US, deeper panic might start to set in which could pull risk assets lower.

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