Global Central Banks Enact Dovish Stimuli

In response to the sudden downturn caused by the coronavirus debacle across the global capital market, central banks around the world have enacted aggressive rate cuts to prevent a global economic slowdown. On Thursday (5/3) The Federal Reserves of the United States of America has announced a 50 basis points emergency rate cut to offset the financial shock from the coronavirus scare in the States. Both Goldman Sachs and ING predict further rate cuts up to 100 bps for the US central bank. Jerome Powell, Chairman of the Fed, said in a statement Friday that while the fundamentals of the US economy "remain strong," the coronavirus "poses evolving risks to economic activity”. The US central bank "will use our tools and act as appropriate to support the economy," he said.

The Central Bank of Malaysia and the Reserve Bank of Australia have also announced 25 bps cuts. Two of the countries most affected by the virus, Italy and South Korea have their banks cut rates as well, while the European Central Bank and the Bank of Japan announced additional monetary policy easing. In Indonesia, the Governor of Bank Indonesia Perry Warjiyo, announced that the bank will take intervening steps to help the economy, increasing liquidity in banking with a value of US$3,2 billion. In an unlikely move, however, the People’s Bank of China has been silent any big-bang surprise from the PBoC, which subsequently said it would not issue any “short-term stimulus” measures to boost the property sector, one the country’s most important economic engines. “Liquidity seems to be broadly ample and the financial plumbing continues to function. You don’t want to go beyond that,” said one adviser to China’s central bank.

Stocks around the world have experienced an extremely volatile week. A wild trading week on Wall Street has seen stocks make big moves in both directions. The 30-stock Dow swung 1,000 points or higher twice within three days earlier this week, reaching all-time highs and lows during the week. The S&P 500 (SPX) fell 3.4% and the Nasdaq Composite (COMP) closed down 3.1%.Thursday's (5/3) close comes after the Dow had two 1,000-point gains and an 800-point loss earlier this week. By 2.45pm UK time, the FTSE 100 was down by 1.8%, the German Dax was down 2.1%, and the CAC 40 in France was down by 2.3%. Japanese stocks were among the biggest losers in Asia as the Nikkei 225 dropped 2.72%. South Korea’s Kospi also shed 2.16% to close at 2,040.22. The Hang Seng index in Hong Kong slipped more than 2%, as of its final hour of trading. Airlines, resources, and international shipping companies were the ones most affected. "Panic mode is clearly evident," said Lukman Otunuga, senior research analyst at FXTM, in a note to investors Thursday. "We still don't know the full impact on corporate earnings for 2020.”

Sources:

CNBC Financial Times

CNN

Tempo