European stock markets closed on a high note. The palm in Amsterdam (+ 1.48%), Brussels (+ 1.47%) and Zurich (+ 1.37%).
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After their dramatic correction last week, European equity markets welcomed the Fed’s surprise rate cut on Tuesday to counteract the effects of the new coronavirus epidemic on growth, but Wall Street remained rather disoriented.
European stock markets closed on a high note in Paris (+ 1.12%), Frankfurt (+ 1.08%), London (+ 0.95%), Madrid (+ 0.80%), Milan (+0 , 43%), Amsterdam (+ 1.48%), Brussels (+ 1.47%) or Zurich (SMI + 1.37%). On the other hand Wall Street was disillusioned after having soared when the Fed announced: the Dow Jones yielded 1.29%, the Nasdaq 0.81% around 5.30 p.m. GMT, shortly after a press conference by the president of the Fed .
“The magnitude and persistence of the effects” of the coronavirus remain “very uncertain” and “no one knows how long” the effects will affect the economy, Jerome Powell said.
“Will the Fed’s rate cut encourage me to go on vacation to Italy? Will it lead to the reopening of the high school closed in New York due to coronavirus? No, “said Patrick O’Hare, analyst of Briefing, to sum up American skepticism.
The markets, which expected a rate cut after the next meeting of the Federal Reserve’s Monetary Committee on March 17 and 18, were surprised by the 0.5 percentage point rate cut announced on Tuesday by the American Central Bank, but they reacted much better in Europe than in the United States.
President Donald Trump said again Tuesday that the Fed should go even further.
“This is still good news in the short term because it gives us more hope for an economic recovery which is seriously marred by the coronavirus crisis”, even if “it does not solve anything and the market will therefore remain nervous, ”said AFP Alexandre Neuvy, head of private management at Amplegest.
Alexandre Baradez, an analyst at IG France, reminds him that this is “the first time since 2008, just after the collapse of Lehman Brothers”, that the Fed has done so.
Before this decision, the markets were first disappointed in a joint G7 statement without any concrete action. The big moneymen of the seven most industrialized countries of the planet said themselves “ready to act, including to take budgetary measures if it is appropriate, to (…) support the economy”, but did not take no monetary policy commitment: they are content to “support price stability and economic growth while maintaining the resilience of the financial system”.
However for the markets, it is urgent to restart the machine after the OECD has forecast that global growth should not exceed 2.4% this year, and that the global economy could even experience a recession in the first quarter because of the Covid-19 epidemic, the toll of which exceeds 3,000 dead with 77 affected countries in the world.
Effective?
The American rate cut decided in emergency in 2008 “had not stopped the decline in the markets, it was rather the opposite, it even accelerated it because the rate cut acted a dangerous situation”, recalled Mr. Baradez.
Many also believe that a rate cut will have only a limited effect on supply short of supply chain disruption due to slowdown activity in China.
“The panic is such that it is no longer certain at this stage that a cut in Fed rates will really be able to stem it,” said Christopher Dembik, head of economic research at Saxo Bank. , in a note.
But “even if no one believes that central banks can solve the crisis, they can help indebted companies weather the storm and avoid tightening financing conditions,” said Neil Wilson, analyst for markets.com.
For him, “the real hope lies in a budgetary response (…). Since central banks have run out of ammunition, especially the ECB, there is hope that Germany will weaken its fiscal position. “
The first to cross the Rubicon, the Australian central bank announced on Tuesday that it would lower its interest rate to 0.5% from 0.75%, its all-time low. The Bank of Japan and the Bank of England are ready.
As for the European Central Bank, it gave an appointment to the market on “March 12”, the date of its next meeting, to provide possible responses to the risks that the epidemic poses to the economy.
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