Daily Commentary BY THE CURVE TEAM –

US Fed Expands QE Program

14th of April, 2020

The US Federal Reserve expanded their QE program before markets closed for the holidays in a move aimed at supporting access to credit for struggling firms.

In what was simply an extension of their current program, the US Federal Reserve will now have within its mandate to purchase High-Yield debt. That is credit with an investment rating below BBB- on the S&P scale. The logic is that it allows for support of those companies who have been downgraded in recent weeks so would have become ineligible for the current program.

Further offshore over the weekend OPEC met to unwind the tensions mainly between Russia and the Saudi’s, which led to the massive gyrations in the price of crude a few weeks ago. The summit resulted in an agreement to lower production by just under 10 million barrels a day. Whilst the move to support the price of crude was well received by the market, it is unclear whether the price will budge upwards with demand for oil at record lows.

Locally, the data calendar for the week is highlighted by Thursday’s unemployment numbers. Whilst there is little doubt in the market we will see an increase in the rate of unemployment, a few elements of the survey will likely result in a smaller increase than we would otherwise expect. Since the data is collected towards the start of March, many of the recent job losses are yet to be reflected in this data. The recent Roy Morgan survey split their cohort between the start and end of March and saw a near doubling in the rate across the subsets. Further, the implementation of the Morrison Government’s Jobkeeper program means many of those people who would otherwise be unemployed are still kept in the employed category.

Later today, Curve will be releasing our Monthly Insight for April. The piece will give a much deeper analysis of recent events and the likely outlook over the medium term.

Matthew Dunshea

Client Relationship Manager