G7 should not commit to coordinated action

UNITED STATES (OBSERVATORY NEWS) — After trading down on the first minutes of trading in CAC 40, the market is going up. The index thus shows an increase of almost 1% at 20 minutes from the opening of the stock market,

After a weak start to the day, the markets finally rebounded yesterday. The CAC 40 ended the day up + 0.44%, while in the United States, the S & P500 and the Dow jumped + 4.60% and + 5.09% respectively.

No reassuring news about the coronavirus epidemic was behind this upsurge, the situation on the contrary continued to worsen.

However, faced with the risks of a pandemic and the already visible consequences of the coronavirus on the economy and the markets, investors began to speculate on coordinated action by the major central banks.

The market anticipates, for example, with near certainty a rate cut of 0.50% for the next Fed meeting on March 18.

Most importantly, the announcement of a G7 telephone meeting raised hopes for an imminent announcement.

However, it seems this morning that disappointment is looming on the horizon …

Reuters sources said the G7 statement should not give a firm directive on budget spending or easing monetary policy to support the market.

As the coronavirus epidemic continues to wreak havoc on the global economy and produce a supply-side shock, it’s hard to see how monetary policy could make a difference overall, but this idea had anyway supported the market yesterday.

The Fed should still lower its rates, and Australia has just cut them.

In this regard, it should be noted that President Trump again called on the Fed to act after the Australian central bank’s rate cuts:

“The Australian Central Bank has cut interest rates and said it would most likely further ease them to compensate for China’s situation and the slowdown in the face of the coronavirus. They were cut to 0.5%, a Other countries are doing the same thing, if not more. Our Federal Reserve is charging us higher rates than many others when we should be paying less. It is tough with our exporters and places the United States in a disadvantageous competitive situation. It must be the opposite. It should soften and cut rates sharply. Jerome Powell, head of the Federal Reserve, made mistakes from day one. It’s sad! ”

However, even if rate cuts around the world are more or less guaranteed at this stage, the lack of desire for clearly announced coordinated action weighs on the markets on Tuesday morning.

The market would have liked to obtain firm commitments from the G7, but it does not seem that the main economies of the planet wish to bind themselves to common commitments with regard to the economic management of the coronavirus crisis.

Note, however, that the final press release is still under development, and that a positive surprise therefore remains possible.

Futures on the CAC 40 therefore point to a falling opening, which should erase the shy gain of 0.44% posted yesterday, after a fall of more than 12% last week, the worst fall in the index since the crisis 2008 financial report.


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