(12 March 2020)DAILY MARKET BRIEF 2:ECB really needs is the support of the Germans
Today, the European Central Bank (ECB) chief Christine Lagarde is preparing to unveil her plans to fight the coronavirus-driven economic
slowdown in the Eurozone. The measures could include a 10-basis-point rate cut, increasing bond issue limits on APP, deploying targeted
liquidity below main refinancing rate and expaningd long-term negative-rate loans to small and medium sized businesses and households to
help them dealing with drying liquidity and to give a boost to subdued activity. The euro slipped to 1.1250 against the US dollar and will
likely remain under pressure on the run-up to the ECB decision.
On the other hand, Lagarde reiterated that central banks’ joint
efforts would only have a meaningful impact if governments acted in tandem. While her predecessor Mario Draghi remained powerless getting
the European governments to support the ECB with adequate fiscal measures, things may be different this time around. Officials of
countries hit by the coronavirus outbreak have already started rolling up their sleeves. Last decade’s austerity measures are no longer,
and EU countries are considering a coordinated action. France declared a situation of ‘force majeure’ and Italy announced a
25-billion-euro package to help its economy combat the virus.
But what the ECB really needs is the support of the Germans. Berlin kept
silent so far, suggesting that a fullhearted German support may not come as easily, if the virus doesn’t pause a threat to Germany, as well.
Finally,
inflation in the US eased to 2.3% in February from 2.5% printed a month earlier. Softer inflation didn’t mean much to investors, who have been
pricing in another sizeable rate action at next week’s FOMC meeting regardless of the economic data. The dollar demand remained weak.
By Ipek Ozkardeskaya
