(11 March 2020)DAILY MARKET BRIEF 2:Pound slips on surprise BoE cut.

Still, the US 10-year yield consolidated above the 0.60% mark, WTI crude made an attempt to $36 per barrel before retracing to the $35 handle and gold traded in a $15 range above $1650 as risk-averse investors preferred piling into the yen and the Swiss franc to hedge their portfolios against another tumultuous trading session.

The EURUSD steadied near its 200-week moving average before Thursday’s European Central Bank (ECB) meeting. The ECB is expected to maintain its rates unchanged at this week’s policy meeting. Investors will rather focus on how the ECB plans to fight a coronavirus-initiated slowdown on growth and inflation. The ECB may not open Pandora’s box right away, as negative rates and monetary expansion proved to be partly efficient over the past decade. But the risks on the single currency are biased to the downside into the meeting.

On the oil deck, Russia responded to Saudi’s threat to increase production by saying that it could also boost output by 500’000 barrel per day. If the world’s biggest oil producers go down that road, the consequences for mid-term oil prices could be dramatic. Though we believe that Russia may not afford to let prices fall too much below the $30 level. While the oil recovery could continue following Monday’s 30% slide, solid offers should cap the upside near $38-$40 area, including the major 38.2% Fibonacci retracement on February – March decline and the psychological level. For now, prospects of a growing gap between global supply and demand should continue weighing on oil prices. Price advances could be interesting opportunities for top sellers.

In the UK, the new Chancellor Rishi Sunak will reveal budget on Wednesday, and investors are hopeful that Sunak will loosen his purse’s strings. Increased spending is needed to assure a smooth Brexit transition and to fight any coronavirus related slowdown in activity. But the Bank of England (BoE) didn’t have the patience to hear what Sunak had to say and slashed the interest rate by 50 basis points to 0.25% in an emergency meeting this morning. The surprise BoE cut sent Cable below the 1.29 mark and should encourage a further weakness toward the 200-day moving average, which currently stands near 1.2720. Cheap pound could temper the selling pressure on UK equities but should so little to soothe concerns about the coronavirus-led global slowdown and tumbling oil prices.

By Ipek Ozkardeskaya