London Open: Fed stimulus too hard to ignore; RBNZ ponders negative rates

Market Analysis / 3 Min Read
Stephen Innes / 13 May 2020

I’m looking at that bounce back in US e-minis and, once again, investors are counting on Fed Chair Powell to grease the wheels off yet another equity markets recovery rally. And despite market sentiment remaining poor as an excuse, the perma bulls are back buying the dip.

The Fed stimulus measures are too hard to ignore, as is the fact that there’ll be more of that to come as the Fed could roll out additional corporate credit facilities and increase its 'main street lending program,' which currently covers 40% of S&P 500 companies. All that policy deluge – before even thinking about negative rates, which is arguably their ace in the hole for even more rainy days – has got investors lining up for their rally bus tickets again.


The RBNZ left the OCR on hold at 0.25%, as expected, but nearly doubled QE to NZD60 bn and will start buying IIB (linkers). Interesting of note: "The Committee noted that a negative Official Cash Rate (OCR) will become an option in future, although at present financial institutions are not yet operationally ready," suggesting that once financial institutions are logistically prepared for negative rates, it's something the RBNZ will seriously consider.

The RBNZ is keen to stay ahead of the curve by scaling asset purchases early, rather than having to do more later. By keeping the door open for negative rates with an eye on the financial system's operation constraints, NZD can come under more sustained selling pressure as markets increasingly weigh this outcome. The contrast with the RBA is profound; the RBNZ is quantitatively and qualitatively more dovish, which wimbles well for AUDNZD upside and NZDUSD downside.

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