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Central banks and fiscal policies are the key … and the stock markets are clear


The stock markets do not stop rising … and this week investors have attended another recital, with very important increases on both sides of the Atlantic (especially in Europe). This has been so despite the fact that, among the most read news in the mainstream media, for the first time there was no coronavirus, but another very negative issue that, however, the markets have ignored: Riots in the United States over the latest racist murder by the Police.

However, from the same Monday the markets made it clear that they intended to pay little attention to this situation, even when Donald Trump threatened to take the Army out to the streets to control the chaos. Neither did investors listen to disturbing news regarding China-US relations. All this was ignored.

And it is that analysts insist that the main reason why the indices are doing so well is because of the artillery deployed by the central banks, and that's what has refocused this week. "Those in the markets know who is 'to blame' for stocks shrugging (in the face of the unrest in the US): central banks," Rabobank said earlier in the week. Meanwhile, at the closing of the same, Julius Baer insisted that Most of the support for the indexes comes from economic policies, something that has been seen very clearly in Europe this week.

This past Thursday, Germany announced a package of aid to face the economic impact of the coronavirus that exceeded all expectations: € 130 billion. The measures include a temporary reduction of the general VAT from 19% to 16% and the reduced rate from 7% to 5%. For its part, also on Thursday, the European Central Bank (ECB) launched a new bazooka, with an expansion of its anti-pandemic asset purchase program (PEPP) in 600,000 million euros, thus bringing the total firepower up to 1.35 trillion euros. At the same time, it announced the extension of the program until June 2021.

"Germany was the epicenter of good vibes (this week), with important spending programs that gave the Dax a big boost. The ECB supported the recovery by increasing its purchasing program. Therefore, the assets most affected by the crisis, in particular those that had not recovered before last week, have again been among the winners, "they explain from Julius Baer.


Efforts by the ECB and Germany to emerge from the crisis have been reinforced this week by other elements that have also contributed to boosting the stock markets, among which stand out the improvement of macro data. This has been reflected in the PMI services in Europe and even in the employment data that has been published in the US, that invite you to think that the economy has bottomed there. In addition, news about the coronavirus is getting more and more positive, and even regarding tensions between the US and China, analysts say "you can find some positives, with some less severe measures than feared and steps by both to ease the situation, for example in the airline business. "

In any case, this is only a 'complement' to the work of the central banks and each of the countries to emerge from the economic crisis and that analysts are clear that it is proving vital for the stock markets. Ipek Ozkardeskaya, from Swissquote Bank, wonders how long they will be able to maintain this rhythm of action each other, and when they will run out of 'gasoline'. Really, that is the question.

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