In a move that caught investors by surprise on Sunday night, the Federal Reserve, along with the European Central Bank, Bank of England, Bank of Japan, SNB and the Bank of Canada threw the kitchen sink at the markets as events over the weekend took further turns for the worst across Europe and the US with respect to the coronavirus.

The US central bank decided they couldn’t wait until Wednesday to announce their latest policy decision when they slashed the Fed Funds rate to 0% to 0.25%, and embarked on a $700bn quantitative easing program. The central bank stated that “the coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States. The Fed also cut reserve requirements for banks to 0%, while at the same time announcing, in a co-ordinated move with their global peers, that they would enhance US dollar liquidity by way of swap arrangements.

While these moves may go some way to easing any potential blockages in the plumbing of the financial markets, they won’t adequately compensate for the upcoming economic shocks that are about to come our way as a result of the events currently unfolding across Europe, as borders get closed and populations get locked down. Central banks have played their part in the past few weeks, it is now up to global policymakers, G7, and or G20 to step with large scale fiscal measures in the coming weeks and months to complement these measures.

This co-ordinated move by central banks serves to underscore the seriousness of the economic shocks coming our way, however they could well miss their mark unless politicians step up as well, especially in Europe, where the risks are the highest and the financial system is the weakest.

 


Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.