The fourth week of heightened will see financial markets continue to focus on the coronavirus spread across Europe and the US. The economic impact of the virus is deepening, and expectations are high for the week ahead to see another wave of massive monetary easing and for governments to inch closer to a fiscal response. The base-case is starting to price in a recession for the US and the length of it will likely determine how long we will see risk aversion remain in place.
A lot of attention will fall on the Fed’s as economists have a wide range of rate cut forecasts that range between a 25-basis point cut to a full percentage point. The downside scenario on the economy appears likely and the Fed will not want to waste ammunition. The Fed will likely lean towards a more aggressive cut and signal its latest QE program will take the balance sheet well beyond the $5 trillion mark this year. Risky assets will eventually benefit from all this global stimulus, but until a better…
