Traders Rev Up Bets on Who’s Next After Fed’s Emergency Cut

(Bloomberg) -- Traders are betting other global central banks will follow the U.S. and Australia in cutting interest rates to combat the economic damage wrought by the coronavirus.

Money markets are expecting the Bank of Canada to jump into action at its meeting on Wednesday -- followed by the European Central Bank and the Bank of England -- after Tuesday saw the Federal Reserve make an emergency 50-basis-point move and the Reserve Bank of Australia lower borrowing costs to a record.

It follows global policy makers and finance ministers pledging Tuesday to fight the economic fallout from the virus.

Here’s how it could unfold this month:

Bank of Canada

• Decision day: March 4
• Current interest rate: 1.75%
• Scale of usual cut: 25 basis points
• Traders expect this month: Markets are pricing in a full cut Wednesday, with around a 75% chance of a 50-basis-point move, following five hikes since mid-2017

European Central Bank

• Decision day: March 12
• Current interest rate: -0.5% (deposit facility)
• Scale of usual cut: 10 basis points
• Traders expect this month: Traders are pricing an 90% chance of a cut deeper into negative territory, though the stimulatory effect of such a move has been questioned

Federal Reserve

• Decision day: March 18
• Current interest rate: 1.0% (lower bound)
• Scale of usual cut: 25 basis points
• Traders expect this month: The Fed could still cut again with traders pricing in a 65% chance of a further 25-basis-point move this month

Bank of Japan

• Decision day: March 19
• Current interest rate: -0.10%
• Scale of usual cut: 20bps
• Traders expect this month: The institution is seen as the least likely to cut rates, having only done so once in the last decade. Money markets aren’t pricing in a move

Bank of England

• Decision day: March 26
• Current interest rate: 0.75%
• Scale of usual cut: 25 basis points
• Traders expect this month: A cut this month is seen as a certainty in markets, while it could act even sooner, following the Fed. There’s a roughly 30% chance of a 50-basis-point cut being priced, despite little being known about the views of the new Governor Andrew Bailey

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