Bank of Canada announces rate cut, US Stocks recover slightly, ADP shows positive data leading to NFP Release
In the latest development regarding US stocks, the Dow Jones, S&P 500 and NASDAQ 100 have all rebounded after last week’s catastrophic crash. The Dow has recovered almost 50% of its losses, gaining over 800 points, a rise of 3.25% for the day. The S&P 500 and NASDAQ are following closely behind, up 2.85% and 2.78%, respectively.
It is unlikely that the emergency rate cut made by the US Federal Reserve yesterday was the cause of this surge. Instead, these gains were most likely affected by the results of the US Democratic Primary elections, which saw former Vice President Joe Biden win in 8 states, giving him a boost against Vermont Senator Bernie Sanders. Biden is seen as more business friendly in his policies than Sanders, who aims to increase tax on the wealthy, and has criticised large corporations for not paying taxes.
As well as this, following on from the Fed rate cuts, the Bank of Canada has followed suit and also cut their interest rate by 50 basis points, or 0.5%, down to 1.25% from 1.75%. This move practically mirrored that of the Fed’s rate cut, which was also 50 bps and aiming to take their rate to the 1.25% range.
But while this move had been expected by investors, given that the Bank had already expressed that they were ready to take measures to stimulate the economy, it was unclear just how much the rate would be cut by.
Citing the coronavirus as the reason why they were cutting rates, the Bank said in a statement that the coronavirus had caused the Canadian dollar to drop amidst global uncertainties and expected the virus to only spread further and cause more damage to the countries GDP.
Following this news the US Dollar enjoyed a healthy rise to the upside, jumping from $1.3331 to $1.3427 against the Canadian.
In other news, as the NFP (Non-farm payroll) rapidly approaches, the ADP data was released. Usually seen as a precursor to NFP, ADP is also a payroll, but one that only measures jobs in the private sector, unlike NFP which measures all jobs in the US excluding agricultural workers. Therefore, it is a less accurate indicator of the US economy, but still useful as it usually predicts how the NFP release will turn out.
For the month of February, the ADP release reported 183,000 new jobs in the private sector, exceeding expectations of 150,000, even though the coronavirus still runs rampant. Therefore, it is possible that we won’t get to see the negative impacts of the virus until next month’s release.
For more information, watch our video here by Anish Lal at BlackBull Markets, or follow us on Instagram and Twitter at BlackBull_markets and @BlackBullforex, respectively.
