Expectations for coordinated action from the main central banks is growing. This comes after Jerome Powell signalled on Friday that the Fed could cut rates, while the BoJ said this morning that “we will provide ample liquidity to ensure financial market stability.” It also announced $4.6 Bn in repos. Furthermore, France’s Finance Minister, Bruno Le Maire, confirmed this morning that the G7 will meet this week and there will be a robust intervention. He also said the response should be as coordinated as possible to be effective (Italy is already preparing € 3.6 bln which it will finance with more deficit).
In the opinion of Santander Credit Research experts:
“Although these interventions should establish a floor for market declines, the problem is they are quickly discounted by the markets. There is already a 40% probability of a 10bp cut in the market depo by the ECB and a 25% chance of a 50bp cut by the Fed ”.
The upcoming central banks’ planned meetings are: March 12 (ECB), March 18, the Federal Reserve (FOMC Proceedings), March 19, the Bank of Japan and March 26, The Bank of England.
For Bankinter analysts, the Fed’s messages will be particularly decisive.
“Only the Fed has the real capacity to influence the market and the determination to take strong action. But, above all, it has the authority to convey a credible and stabilizing message before its meeting on March 18.”
“It is the only central bank capable of stabilizing the market with ad hoc messages, without waiting until that day.”
Today Loretta Mester, president of the Cleveland Federal Reserve and Lorie Logan, senior vice president of the New York Fed market group, are to speak; and tomorrow Charles Evans, president of the Federal Reserve of Chicago.
The Fed blackout period prior to the meeting precisely defines the time it has: it has to take a decision on its messages this week. That is because, according to its formal blackout calendar, it is silent from the Saturday of the week prior to the meeting (so from next Saturday) until the Thursday after it (Thursday March 26).
What Fed members are going to say this week is that they are “ready to act.” They are thus implicitly confirming they will lower -25 b.b. on March 18 (up to 1.25% / 1.50%), while also implying the organisation will continue later if necessary (June and December or even earlier?). This will be the better reversal point, moving towards market stabilization. That should happen this week, but most likely it will be later on in the week. Today is not the best day since European and American PMIs , which will probably be weak, will be published.
For the time being, members of the European central bank will remain busy relativizing the impact of the latest developments in the EMU economy. For example, Bundesbank governor Jens Weidmann flagged that the current situation “does not require monetary policy action.” In a similar vein, Lithuania’s representative, Vitas Vasiliauskas, stated in Frankfurt that a “focus of wait and see ” should be adopted. The speech asking for calm captured the ECB and was also lead by Lagarde. She ruled out the need for our central bank to intervene.
