Curious the effect that multiple measures against coronavirus are having on investors, especially those of the central banks. Far from calming them and promoting increases in the stock market, the fact that they are so many and so drastic is clearly increasing panic and increasing declines in equities. This is what happened when the Federal Reserve (Fed) announced that last rate cut by one basic point by surprise, and that is what it seems is going to happen this Thursday -although with more contained declines- after last night the ECB also came out by surprise with all its artillery.
After clearly falling short at their monetary policy meeting, causing the Ibex the biggest crash in its history, the monetary body has launched a new € 750 billion asset purchase program to try to ease financial tensions in the eurozone. The new program has been called the Pandemic Emergency Purchase Program (PEPP), a Pandemic Emergency Purchase Program.
The ECB has decided to launch "a new temporary asset purchase program of public and private sector securities to counter the serious risks to the monetary policy transmission mechanism and the prospects for the euro area posed by the outbreak and the increasing spread of the coronavirus, Covid-19, "he announced.
For the experts at Danske Bank, "after the recent disappointment (of the ECB) and the falls in the financial markets, this package will serve as a clear guarantee to the markets that the ECB will be there. With it, the ECB clearly indicates that it is ready to do more and to increase the size of purchasing programs and to adjust the composition. "
Experts highlight that these ECB measures have arrived after a day (this Wednesday) that will go down in history due to the strong collapse in all areas. "We saw big declines in the bond, equity and oil markets as investors went into liquidity. This has continued overnight without gold prices being saved, although they have performed slightly better than most." explains Michael Hewson, chief analyst at CMC Markets. Oil is at 18-year lows and the pound at 35-year lows.
Asian stocks have fallen this morning (especially highlights the Philippine crash after resuming trading after being closed) and Wall Street futures are down 3% after the retracements seen this Wednesday, which were 6.3% for the Dow Jones. As for European futures, they leave just over 1%.
All this while the Fed continues to announce economic measures to contain the virus and after the Australian RBA has reported a rate cut to the minimum of 0.25% and an asset purchase program. The Australian stock market has plummeted particularly sharply in recent days.
"It is increasingly clear that current market downturns could worsen before improving, with dim predictions of a contraction of up to 20% of GDP. It is becoming increasingly clear that the world economy is on the brink of a painful contraction of various degrees, "warns Hewson.
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