Fiscal Policy

MARKET WRAP: New UBS Boss, China Stocks Rally after Rates Cut (again), Aussie Plummets

China Stocks Rally
China cuts rates

China has cut its benchmark lending rate: China 1-year Loan Prime Rate (LPR) cut to 4.05% and 5-year to 4.75%. Markets mostly shrugged off stale Fed minutes.

Coronavirus: 114 news deaths, 394 new cases are down from 1749 yesterday but China has again changed its methodology for diagnosis and is excluding using CT scans. The actual number of cases is unknown according to China’s Global Times.


European indices have opened on a slightly softer note, backtracking from a big up day. European shares had already been pricing in the extra Chinese stimulus efforts so we are looking ahead to the release of accounts of the latest ECB meeting later.

Across Asian markets, China was a clear out-performer thanks to the fresh stimulus measures. The Shanghai Comp rose 1.3% but we’d view Chinese government bond yields hitting a 4-year low as a better gauge of the market’s view of the risks at hand. S&P ratings have predicted a worst-case scenario in which China grows 4% in 2020. The result of cheap credit and lower growth in China will be more non-performing bank loans. Chinese banks will be in a much weaker position to lend if the economy recovers and at greater risk in a more serious downturn.

The Nikkei was higher by just 0.34%. The yen plunging to a 9-month low hasn’t benefitted Japan as much as one might have thought. We think recession risk is bearing on both Japanese asset classes.

The S&P and Nasdaq both closed at record levels on Wednesday. The Nasdaq was led higher by Tesla (+6.8%). The Nasdaq had been up to over 1% but backed off into the close. Goldman Sachs has echoed comments we made yesterday that markets are under-pricing the risk of the coronavirus.


Ralph Hamers will replace Sergio Ermotti as the next head of UBS. The appointment is quite rapid by contrast with typical bank succession planning standards. Bank executives often line up their replacements years in advance. There might be some concern that UBS has been a bit hasty. Ermotti will be a hard act to follow, having made UBS the world’s largest wealth manager despite the changing landscape for Swiss bank transparency.


The Fed took a more optimistic outlook in the latest meeting minutes but there was no material shift in communication or substantial details on the policy review, where results are expected mid-year. The shoot up in the number of coronavirus cases, Powell’s subsequent testimony and the improved US data all served to make the minutes rather stale.

The Aussie dollar is under renewed pressure after Australian unemployment rose more than expected to 5.3% versus 5.2% exp and 5.1% prior. AUDUSD is down at 2009 lows. The RBA sounded hesitant about cutting interest rates because they are already so low but if trade and coronavirus uncertainties start to show up in the labour market then they may need to get off the fence.

The day ahead sees UK retail sales and ECB meeting accounts.


Gold reached its highest since 2013 on Wednesday. The yellow metal is holding its own at 1611 per oz, the high from January after the Soleimani drone strike. Our best assumption is that the breakout holds and that prices move in the direction of 1650 per oz in fairly short order.

Opening Calls

S&P 500 is set to open 2 points lower at 3384

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