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ECB joins the movement

Foreign virus

The US President sought to reassure his people yesterday that Covid-19 has nothing to do with them; it is a “foreign virus”. Whatever it did for his electoral prospects, his comment fell flat with investors, especially when he announced a travel ban from Europe. US equities had another losing day.

The travel ban had a negative impact on the US dollar, costing it a swift half-cent against the euro. Overall, however, the dollar had a mostly positive day with an average gain of 0.5%. In the end, it gained half a cent against the euro and more than a cent against sterling. 

Sterling had a day of mixed fortunes. A burst of volatility just ahead of London’s opening saw it swing across a range of one and a half euro cents before moving higher ahead of the UK output data. Disappointment set in swiftly, with gross domestic product stagnating in the three months to January. Manufacturing production rose 0.2% on the month while overall output was down by 0.1%. The Budget was initially positive for the pound but the wheels came off in the afternoon for no obvious reason. Sterling lost an average of 0.4%, giving up half a euro cent and one and a half yen.

Mutual stimulus

Stimulus was the order of the day, with announcements from London, Ottawa, Canberra, Rome, Washington and elsewhere. The most striking was the coordinated pitch from the Bank of England and the Treasury. The woolliest was the US administration’s promise of jam tomorrow, maybe. 

Following up on the Bank of England’s rate cut, the Chancellor of the Exchequer delivered an equally dramatic Budget speech that was far removed from anything presented by a Conservative government in decades. The borrow-and-spend plans will involve massive new government borrowing, which the chancellor hopes can be achieved at low cost, around 0.29% per annum at the moment.

The Canadian Prime Minister announced a $1 billion aid package, with about half of the money going to the provinces. Australia has put together a $22.9 billion package, the bulk of which will go to offset the effects of the tragic Covid-19 outbreak. In the States, the House of Representatives will vote today on an as-yet-unspecified stimulus package worth “billions”.

Stand up Mme Lagarde

The European Central Bank President Christine Lagarde will step up to the plate at half past one to reveal what stimulatory steps the ECB will take to support the Euroland economy. She does not have the scope to do “whatever it takes”, nor is there any prospect of coordinated action with the politicians, but she will be expected to do something.

Ms Lagarde told European leaders on Tuesday night that a financial crash similar to 2008 is around the corner if they fail to provide financial support. It is expected that the ECB will lower interest rates today, perhaps alongside the provision of emergency liquidity and increased asset purchases. However, current policy rates give the bank little room for manoeuvre, with its marginal lending facility at 0.25%, the refinancing rate at 0% and the deposit rate at -0.5%. 

As far as the published agenda is concerned, that ECB announcement is the most significant event ahead of the weekend. However, it is clear from recent experience that events are not sticking to any schedule at the moment. Surprises are the order of the day, and often not pleasant ones.

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