The Bank of England surprised the markets by cutting interest rates by 50 basis points, trying to shelter the UK economy from economic damage that could be inflicted by the spread of the coronavirus.
The move seems disproportionate with what is actually happening on the ground given that the UK has only 383 registered cases compared to France’s 1,700, Germany’s 1,500 and Italy’s 10,000. Pictures from Italy remain very dramatic as the whole country is now in full lock down but the rest of Europe is already on high alert and the virus is spreading at a fairly slow pace.
Now that UK borrowing rates are down at 0.25%, the lowest level in history, London stocks are trading higher across the board, particularly domestic-facing stocks such as home-builders, banks and insurers. Legal & General is topping the list of gainers as investors speculate that the insurer, which reported a 12% increase in profits for 2019, will emerge less scarred from coronavirus claims than other financial services firms, such as Standard Chartered.
The day could bring more surprises when the new Chancellor Rishi Sunak presents his first budget at 12.30.
Brent crude settles into a trading channel
Brent crude seems to have settled from the shock plunge on Monday caused by Saudi Arabia’s decision to increase oil production and has found some sort of new normal. The commodity is trading in a narrow channel between $36 and $39, indicating that the lows of below $30 seen this weekend were shrugged off by the market as unrealistic even if more Saudi oil hits the markets from April.