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Across class rally on central bank hopes

Across class rally on central bank hopes

Shares and industrial commodities jumped in overnight trading on raised expectations that central banks will act to offset economic damage from the Covid19 virus. Reports that G-7 finance ministers and central bankers will hold a teleconference on Tuesday sparked the rally. The first test of this market theory comes today when the Reserve Bank of Australia decides on interest rates at its monthly board meeting.

Anticipation of easier money conditions lifted all assets. European share gains were modest, but buying accelerated towards the end of the US session to lift the Dow Jones Index 5%. Similarly LME trading lifted base metals, but copper lifted to record a 2.4% gain in Chicago.

Crude oil markets set the benchmark. Both Brent and West Texas rallied 6% after comments that Russia will support any further OPEC production cuts added to confidence.

However safe havens also saw good support. Gold rose modestly. Bonds continued their recent rally, and US ten years set another record low yield. The exception is the Japanese yen, which fell slightly against the US dollar.

Short-term interest rate markets are pricing an almost certain interest rate cut from the RBA today. A few lone voices make the point that Australian housing is again running hot, but the consensus favours a cut to ward off the effects of recent bushfires and the viral outbreak.

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