27 April to 3 May: Central banks to continue to aid the ailing global economy

Last week we got to know the initial impact of social distancing, lockdowns and business closures on the developed economies. Real GDP in the US contracted 4.8% in annualised terms in 1Q20, as both consumer spending and investment activity significantly weakened. Meanwhile, real GDP in the Euro Area fell 3.3% YoY. From a country standpoint, Spanish GDP contracted 4.1% YoY, Italy’s GDP declined 4.8% YoY, whilst the French metric decreased 5.4% YoY. The figures by Germany and the UK are yet to be released. Forward-looking indicators, such as the ISM in the US or PMIs in Europe, painted a very gloomy picture in our view, suggesting that economic activity in the developed world could significantly further weaken in 2Q20.

Central bankers spoke up during the week after their scheduled monetary policy meetings. Fed Chair Powell said that the FOMC would keep the Fed funds target range at 0.00-0.25% until the Committee was confident that the economy had ‘weathered recent events’ and added that the FOMC would ‘not be in any hurry.ECB President Lagarde announced a new series of pandemic emergency longer-term refinancing operations to support liquidity conditions and to provide a liquidity backstop to banks, whilst keeping the key policy rates stable and asset purchases running. The Bank of Japan continued to add layers of policy supports for the economy by maintaining a broad scope for asset purchases. Therefore, all three major central banks reiterated their intention to provide as much support as possible.

Despite central bankers’ efforts to calm financial markets and smooth asset price volatility by extending and expanding the range of monetary support, investors may face a challenging week, as the US administration released hawkish comments on China on Sunday. US Secretary of State Mike Pompeo said there was ‘a significant amount of evidence’ that the new coronavirus emerged from a Chinese laboratory. However, the State Secretary did not provide evidence. In our view, Mr. Pompeo’s comments, with a suggestion from the POTUS that he would impose tariffs on China because of the pandemic, do not support the recovery of global investor sentiment. On Friday, the April US jobs report will be released, which is expected to show an unprecedented increase in the number of jobs lost and a skyrocketing unemployment rate.

View All Global Market Updates

Subscribe to ourGlobal Market Updates

Error: Contact form not found.