Stocks spike as central banks throw kitchen sink at virus

The coronavirus outbreak has transformed the US from a place of boundless consumerism to one suddenly constrained by nesting and social distancing. (AFP)
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Updated 20 March 2020

Stocks spike as central banks throw kitchen sink at virus

  • BoE comes back with second rate cut within days and unleashes its ‘biggest ever ever one-off round of asset purchases’
  • The US Federal Reserve also injected more funds into money markets

PARIS: World stock markets spiked on Thursday as massive central bank action finally got the attention of investors who had earlier shrugged off dizzying amounts of liquidity pouring into the financial system to fight the coronavirus impact.

The Bank of England came back with its second rate cut within days and unleashed its “biggest ever ever one-off round of asset purchases,” said Kallum Pickering, senior economist at Berenberg.

The Bank threw “the kitchen sink” at the coronavirus, said Craig Erlam, senior market analyst at OANDA, a day after the European Central Bank fired its most impressive monetary salvo yet in a bid to prevent a credit crunch in a stuttering eurozone economy.

The US Federal Reserve also injected more funds into money markets on Thursday.

The central bank action, combined with fiscal measures across the globe, helped stock market turn a corner after earlier weakness, with Wall Street more than 1 percent higher in midday trading, and key European equity markets packing even stronger gains.

The ECB’s massive action, meanwhile, undermined the euro against the dollar, which got a shot in the arm from investors buying into safety, even prompting speculation of possible Fed intervention to stem its rise.

The biggest impact of the smorgasbord of monetary efforts was on global bond markets, where yields fell on expectations that central banks will now be gobbling up any long-term debt that governments, and large corporations, are willing to issue.

But voices warning of the limits of monetary policy would not be silenced. “What if liquidity support is not enough?” asked Holger Schmieding, at Berenberg, wondering whether governments might be tempted to take direct stakes in companies, if only to save them from hostile takeover — a policy shift he called “a potential risk.” Thursday’s relief across markets was tempered by the fear of a terrible economic impact still ahead, analysts said.

“Markets are in risk-averse mode,” said Christopher Dembik, head of economic research at Saxo Banque in Paris.

Investors were now expecting a global recession “of a singular size,” he said, adding that solace was nowhere to be found “even if enormous means are being deployed.”

But in the short term, those means did provide some relief to frayed investor nerves.

Investors saw “the European Central Bank calm markets, at least for now, with their stimulus package,” said Scope Markets analyst James Hughes.

The so-called Pandemic Emergency Purchase Program came six days after the ECB unveiled a big-bank stimulus package that failed to calm nervous markets and had piled pressure on the bank to open the cash floodgates.

After announcing the move, ECB boss Christine Lagarde tweeted that “extraordinary times require extraordinary action.” analyst Neil Wilson said the ECB action “looks more like a bazooka than anything they’ve done thus far.”

Earlier Thursday, Asia stocks initially climbed on the ECB’s midnight announcement but soon tumbled as investors contemplated months of economic hardship.

Oil prices rebounded almost as spectacularly as they had dropped on Wednesday when US benchmark WTI lost around a quarter of its value.

Oil markets have been hammered by collapsing demand as the virus prompts sweeping travel restrictions and business closures.

EU pledges to stay green in virus recovery

Updated 29 May 2020

EU pledges to stay green in virus recovery

  • To help economies from the 27-nation bloc bounce back as quick as possible

BRUSSELS: The European Commission pledged on Thursday to stay away from fossil-fueled projects in its coronavirus recovery strategy, and to stick to its target of making Europe the first climate neutral continent by the middle of the century, but environmental groups said they were unimpressed.

To weather the deep recession triggered by the pandemic, Commission President Ursula von der Leyen has proposed a €1.85 trillion ($2 trillion) package consisting of a revised long-term budget and a recovery fund, with 25 percent of the funding set aside for climate action.

To help economies from the 27-nation bloc bounce back as quick as possible, the EU’s executive arm wants to increase a €7.5-billion ($8.25 billion) fund presented earlier this year that was part of an investment plan aiming at making the continent more environmentally friendly.

Under the commission’s new plan, which requires the approval of member states, the mechanism will be expanded to €40 billion ($44 billion) and is expected to generate another €150 billion in public and private investment. The money is designed to help coal-dependent countries weather the costs of moving away from fossil fuels.

Environmental group WWF acknowledged the commission’s efforts but expressed fears the money could go to “harmful activities such as fossil fuels or building new airports and motorways.”

“It can’t be used to move from coal to coal,” Frans Timmermans, the commission executive vice president in charge the European Green Deal, responded on Thursday. “It is unthinkable that support will be given to go from coal to coal. That is how we are going to approach the issue. That’s the only way you can ensure you actually do not harm.”

Timmermans conceded, however, that projects involving fossil fuels could sometimes be necessary, especially the use of natural gas to help move away from coal.

The commission also wants to dedicate an extra €15 billion ($16.5 billion) to an agricultural fund supporting rural areas in their transition toward a greener model.

Von der Leyen, who took office last year, has made the fight against climate change the priority of her term. Timmermans insisted that her goal to make Europe the world’s first carbon-neutral continent by 2050 remained unchanged, confirming that upgraded targets for the 2030 horizon would be presented by September.

Reacting to the executive arm’s recovery plans, Greenpeace lashed out at a project it described as “contradictory at best and damaging at worst,” accusing the commission of sticking to a growth-driven mentality detrimental to the environment.

“The plan includes several eye-catching green `options,’ including home renovation schemes, taxes on single-use plastic waste and the revenues of digital giants like Google and Facebook. But it does not solve the problem of existing support for gas, oil, coal, and industrial farming — some of the main drivers of a mounting climate and environmental emergency,” Greenpeace said.

“The plan also fails to set strict social or green conditions on access to funding for polluters like airlines or carmakers.”

Timmermans said the EU would keep investing in the development of emission-free public transportation, and promoting clean private transport through the EU budget.