The decisions adopted by the Federal Reserve, the leaders of the G7 and the European finance ministers to mitigate the negative effects of the coronavirus on the economy will mark the future of the stock markets next week, after the historical falls registered last Thursday despite the measures taken by the European Central Bank (ECB), considered insufficient by the markets.
“Next week is going to be key”, in the opinion of Juan Carlos Martínez Lázaro, professor of Economics at IE Business School, both for “for the responses that governments are going to take on statements of alarm states, restrictions on mobility , limit certain areas of economic activity “and because there will be” economic responses from central banks “and” from the European institutions that have to begin to articulate measures to support and support economic activity. “
In addition to the decision on the FED rates, which after the surprise half-point cut earlier this month could lower them by another half a point, decisions by both the Bank of Japan and the Central Bank of Brazil are also expected next week. .
G7 SUMMIT AND EURO-GROUP MEETING
The week starts on Monday with two key appointments: an extraordinary summit by videoconference of G7 leaders to coordinate their response to the coronavirus crisis and a meeting of the Eurogroup, called to adopt measures, including fiscal ones, to address the impact economic from the pandemic, which could lead the European Union into recession this year.
“The fiscal response given by the European institutions will be key, especially for Europe. If that fiscal response is not conclusive, I think we are going to face a situation that is probably even more serious than what we saw in the financial crisis. It is necessary that this time Europe acts and that not only are the central banks with liquidity, but that there be a series of fiscal aids and stimuli that make it possible to compensate for this stoppage of activity that is so important that we are already having but it is guessed that we will have with more intensity in the next 2 or 3 weeks, “insisted Martínez Lázaro.
The Ecofin will meet on Tuesday, made up of the ministers of Economy and Finance of the EU member states. .
NEW CUT FROM THE FED?
Also on Tuesday begins the periodic meeting of the Federal Reserve, which earlier this month announced by surprise and without waiting for this appointment a half-point cut in interest rates, something not seen since the financial crisis.
Allianz Global Investors expects the US central bank to announce a further rate cut on Wednesday, which several analysts put at half a point.
“We expect the Federal Reserve to make several cuts shortly, approaching the 0% level. The Bank of England and other central banks have already started doing so last week,” he said.
According to ING, the problem is that the Fed “does not have much ammunition” in terms of interest rates, so it may prefer to divide it with two movements of 50 basis points, one next week and another in April, although, given its injections With massive liquidity, the Fed has signaled that it is ready to go “with everything.”
“Probably the FED, -like other central banks- will continue lowering interest rates, expanding monetary stimuli and trying to ensure that the monetary policy transmission belts continue to function properly in a situation as complex as the one we are in,” Martínez Lázaro pointed out. .
APPOINTMENTS FROM OTHER CENTRAL BANKS
The Brazilian Central Bank also reviews its monetary policy on Wednesday and decides on interest rates, currently at 4.25%, while the Bank of Japan will make its rate decision on Thursday.
“Interest rates in Japan are already at negative rates, which can deepen that path by providing more liquidity and more credit facilities. In Brazil there is still room to lower rates, since interest rates are still high We are going to have a significant contraction in inflation … the drop in fuel prices is so strong that it is going to carry over to the inflation indexes in an important way and therefore there is going to be much more room to lower interest rates in those countries where those interest rates are still high and where there could be some risk of inflation. “
RELEVANT ECONOMIC INDICATORS
Economic data will rather be in the background this week, although markets will be on the lookout for weekly (and therefore recent) figures for initial applications for US unemployment benefits. (Thursday) and leading indicators, such as the German ZEW index (Tuesday), which will give initial indications about the impact of the coronavirus on the manufacturing sector and capital markets, highlights Allianz Global Investors
Another relevant figure is that of industrial production in China corresponding to January and February, which is known on Monday, important to measure the impact of the coronavirus on the Asian giant’s economy and its capacity for economic recovery and that of oil inventories in the United States. United (on Wednesday), which with such sensitive oil can move the market.