Central banks are once again attacking to counter the financial and economic damage of the corona outbreak. The US Federal Reserve cuts interest rates by a whole percentage point, initiates a new debt purchase program of at least $ 700 billion, and temporarily lowers capital requirements for banks.
Interest rates on dollar transactions have also been cut along with other central banks, including the ECB, the Bank of Japan and the Bank of England. This should ease tensions in the money markets and ensure that banks have enough dollars and can more easily channel money to households and businesses.
The measures seem to have little impact on the stock markets and do not allay the fear and uncertainty. Stock markets in Asia turn red and the European stock markets are heading for large exchange rate losses.
Surprise
It is the second time that the Fed has intervened unexpectedly and firmly. In early March, interest rates were cut by half a percentage point. However, it was not possible that stock markets went down heavily and recorded the largest losses since ‘Black Monday ‘, the stock market crash of October 19, 1987. The rate cut was a surprise to President Trump, although he has been insisting for weeks.
The Fed resumes the Quantitative Easing, the debt buy-back program, an instrument used in the financial crisis and successfully. $ 500 billion of US government bonds are being bought and $ 200 billion in mortgage debt.
The ECB decided on Thursday to put an extra € 120 billion in the economy through more debt purchases, but did not lower interest rates. On that day, share prices plummeted.
Red exchanges
The new rigorous measures should support the economy, but do not seem to be doing much at the moment. The futures contracts on the US stock market indices point to losses of 4 to 5 percent for the new trading week.
Stock exchanges in Asia are thick in red. The Tokyo Stock Exchange closed 2.5 percent lower, and that of Seoul more than 3 percent. The Shanghai and Hong Kong stock exchanges are losing around four percent.
Index futures on the European stock exchanges are also marked in red and indicate openings of more than 5 percent.
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