Markets await G7, Eurogroup, Fed meetings with bated breath

Madrid, Mar 15 (efe-epa).- The decisions taken by the US Federal Reserve, the leaders of the Group of 7 (G7) and the Euro area’s finance ministers at summits and meetings this week will determine the immediate future of stock markets, following historic losses on March 12 in the wake of measures announced by the European Central Bank, which many onlookers considered insufficient.

“The coming week will be crucial,” says Juan Carlos Martínez Lázaro, economics professor at the IE Business School, due to “the responses that governments are going to take in terms of state of emergencies, restrictions on movement, and limiting 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 roll out measures to prop up the economy”.

In addition to the Fed’s decision to surprisingly slash rates by half a point at the start of the month, the US central bank could drop them by another half a point this week, while decisions by both the Bank of Japan and the Central Bank of Brazil are also expected in the coming days.

The week starts with two crucial gatherings: an extraordinary video conference of the G7 leaders to coordinate their responses to the coronavirus crisis, and the Eurogroup, which has been called to adopt measures, both financial and fiscal, to address the economic impact caused by the pandemic, which is threatening to plunge the European Union into a recession this year.

“The fiscal response from the European institutions will be key,” says Martínez Lázaro. “If the response is not comprehensive, I think we will be faced with a situation that is even more serious than the financial crisis. This time, Europe needs to act; not just the central banks who can pump in cash, but there must be a range of measures and fiscal stimulus packages to compensate for the shutdown of most economic activity, which is expected to get even more extreme in the next two to three weeks.

To that end, the EU’s finance ministers (Ecofin) will meet in Brussels on Tuesday to discuss what further action the bloc will be taking.

Also on Tuesday, the US Federal Reserve will meet two weeks after it surprisingly slashed its rates, something it had not done since the 2008 financial crisis.

Allianz Global Investors predicts that the US central bank will announce a new downward revision of its interest rates, which several analysts expect to be around half a percentage point and would reduce rates to close to 0%, in line with the Bank of England and others.

“The Fed – like other central banks – will likely continue lowering interest rates, expanding monetary stimuli and trying to ensure that monetary policy continues to function properly in a situation as complex as this one,” Martínez Lázaro predicts.

The Brazilian Central Bank is also expected to review its monetary policy on Wednesday to decide its interest rates, which currently stand at 4.25%, while the Bank of Japan will make its own rate on Thursday.

“Interest rates in Japan are already below 0, so it could continue down 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 have a significant impact on the inflation indexes. There will therefore be much more room to lower interest rates in countries where those interest rates are still high and where there could be some risk of inflation,” says Martínez Lázaro.

In addition to watching market developments and measures unveiled by central banks, observers are awaiting China’s publication of its industrial figures for January and February, which will provide a gauge of just how severe the economic damage of the coronavirus crisis has been on the world’s second largest economy. EFE-EPA


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