On Wednesday (March 11), the Bank of England (BoE) — the UK’s central bank — announced that it had cut its base rate to just 0.25% as part of a set of measure designed to “respond to the economic shock from Covid-19.”
The BoE’s announcement started by explaining the motivation behind these measures:
“Following the spread of Covid-19, risky asset and commodity prices have fallen sharply, and government bond yields reached all-time lows, consistent with a marked deterioration in risk appetite and in the outlooks for global and UK growth. Indicators of financial market uncertainty have reached extreme levels.
“Although the magnitude of the economic shock from Covid-19 is highly uncertain, activity is likely to weaken materially in the United Kingdom over the coming months.
“Temporary, but significant, disruptions to supply chains and weaker activity could challenge cash flows and increase demand for short-term credit from households and for working capital from companies. Such issues are likely to be most acute for smaller businesses. This economic shock will affect both demand and supply in the economy.”
So, the BoE had a special meeting last night, where the Monetary Policy Committee (MPC) “voted unanimously to reduce Bank Rate by 50 basis points to 0.25%.” The Bank Rate (aka “Bank of England base rate”) is “the rate the Bank of England charges other banks and other lenders when they borrow money.”
Although Asian stock market indices such as Hong Kong’s Hang Seng Index , Shanghai Composite Index, Japan’s Nikkei 225 fell today (0.63%, 0.94%, and 2.27% respectively), UK and European stock market indices are almost all higher today (the main exception being Spain’s IBEX 35 index).
The BoE’s emergency rate cut seems to have helped both the UK and the European stock markets due to the increasing confidence among traders that governments around the world are beginning to understand that they need to act quickly and decisively to reduce the economic impacts of COVID-19.
As macro-economist and crypto analyst Alex Krüger pointed out earlier today, the next two central banks that are expected to announce interest rate cuts are the European Central Bank (ECB) and the Federal Reserve (aka “the Fed”):
BoE played ball. ECB coming up on Thursday. Then the Fed again the following Wednesday. https://t.co/rFU9d7XGp4
— Alex (@classicmacro) March 11, 2020
Yesterday, Ursula von der Leyen, the President of the European Commission, said that the European Union needed to “act very decisively and collectively” to control the spread of the SARS-CoV-2 coronavirus and to “counter the economic fallout”:
#COVID19 Today marks an important step in a coordinated response at EU level. The @EU_Commission will bring forward a Corona Response Investment Fund of € 25bn to help our healthcare systems, SMEs and labour markets. pic.twitter.com/c4pCYAPS7V
— Ursula von der Leyen (@vonderleyen) March 10, 2020
However, so far, the crypto markets do not seem to be too impressed, with Bitcoin currently down 3% (in the past 24-hour period):
In fact, according to data from CryptoCompare, currently (as of 11:15 UTC) 18 out of the top 20 cryptoassets (by market cap) are in the red, with the exceptions being stablecoin USDT and exchange token LEO.
Crypto startup Santiment, which provides “a behavior analytics platform for cryptocurrencies”, said last week (on March 6) that it was seeing an inverse correlation between mentions of “coronavirus” on social media platforms and the price of Bitcoin:
Our @santimentfeed Emerging Trends platform continues to show that daily searches for #corona or #coronavirus are having a very telling inverse correlation with #Bitcoin's price. This green line may not show the actual global impact of the corona virus, but it does gauge how pic.twitter.com/ZfOgsXMeYq
— Santiment (@santimentfeed) March 6, 2020
Crypto analyst Krüger says that we should not be shocked even if the price Bitcoin drops 20% in one hour in times of panic like this since “large whales” may decide that they need to liquidate their Bitcoin holdings:
$BTC in this environment can drop 20% in an hour. It could come out of nowhere, as large whales panic or decide to liquidate positions to cover margin calls or hunt for bargains in other asset classes. No analysis of the past will uncover this.
— Alex Krüger (@krugermacro) March 9, 2020