Bank of England rate cut pushed FTSE higher
Performance of FTSE 100 on 19 Mar 2020
Source: Google Finance
The FTSE 100 closed up 1.4 per cent at 5,152 points on Thursday, after 24 hours of big monetary policy announcements to combat the coronavirus crisis.
Earlier in the session, the Bank of England took the base rate down to 0.1 per cent, a new historic low, in the second rate cut of the week. The Bank also announced it would buy £200bn in bonds.
This followed the European Central Bank unveiled its Pandemic Emergency Purchase Programme, which will €750bn injected in the financial system through asset purchases.
The German DAX, French CAC 40, Italian FTSE MIB and Spanish Ibex 35 all had positive sessions on Thursday.
“The rate cut is largely symbolic”
On the Bank’s rate cuts and increased bond buying today, OANDO senior market analyst Craig Erlam said: “As is all the trend now, the Bank of England announced further easing measures this afternoon in another unscheduled response to the coronavirus crisis.
“The biggest impact has come in government bonds, where the BoE stated it will focus much of the new asset purchases, with the program increased by almost 50 per cent. This should alleviate some of the pressure that's built in the aftermath of the UK governments huge stimulus plans which will flood the market with new debt.
“The rate cut is largely symbolic and highlights just how little room the Bank has to manouvre on the traditional side which the increase in the term funding scheme should provide additional relief to SMEs. Whether that will be enough to reduce layoff's and stop good businesses going bust, we'll have to wait and see. Both seem inevitable, even with all of this support.”
Bank of England slashes base rate to 0.1%
The Bank of England (BoE) has cut interest rates to their lowest in history, down from 0.25 per cent to just 0.1 per cent.
This is the second emergency rate cut the BoE has made this week in an effort to support the UK economy during the coronavirus pandemic.
It also said that it will buy another £200bn in UK government bonds and sterling non-financial investment-grade corporate bonds. This would take total bond purchases to £645bn.
A statement from the Bank said: “The spread of Covid-19 and the measures being taken to contain the virus will result in an economic shock that could be sharp and large, but should be temporary.
“The role of the Bank of England is to help to meet the needs of UK businesses and households in dealing with the associated economic disruption.”
School closures are a game-changer for labour supply
With schools and nurseries across the UK closing because of the coronavirus outbreak, Pantheon Macroeconomics has produced this chart showing the impact this could have on the country’s labour supply.
Source: Pantheon Macroeconomics
“Neither monetary nor fiscal policy can be a panacea for this enormous real economy shock”
Aberdeen Standard Investments senior economist Paul Diggle on the European Central Bank’s €750bn Pandemic Emergency Purchase Programme: “This is a distinct echo of ‘whatever it takes’.
“Indeed, that is becoming a common refrain among policymakers these days. We would not rule out even larger ECB measures in the weeks and months ahead, including working with the European Stability Mechanism to provide essentially monetised fiscal support, and even anchoring sovereign bond yields and spreads across the bloc.
“The punchiness of this programme is primarily a response to rising sovereign debt yields in the eurozone, and in particularly a response to increasing periphery spreads. The initial market reaction is positive, as BTP-Bund 10-year spreads have tightened almost 100 basis points this morning.
“However, our view remains that neither monetary nor fiscal policy can be a panacea for this enormous real economy shock, but they can mitigate at least some of the risks of the shock mutating into a financial crisis and support the eventual recovery.”
FTSE 100 up on ECB bond-buying plan
Performance of FTSE 100 on 19 Mar 2020
Source: Google Finance
The FTSE 100 has opened higher this morning after the ECB unveiled its Pandemic Emergency Purchase Programme.
German, French, Italian and Spanish all started Thursday’s session higher after the central bank pledged to buy €750bn of government and corporate bonds to mitigate the impact of the coronavirus outbreak.
ECB unveils €750bn bond-buying ‘Pandemic Emergency’ programme
The European Central Bank plans to buy another €750bn of bonds in a bid to tackle the worsening economic fallout of the coronavirus pandemic.
In a call last night, the ECB’s rate-setting committee decided that the new 'Pandemic Emergency Purchase Programme' would target both government and corporate debt.
The extra asset purchases announced last night will be carried out this year, while the Pandemic Emergency Purchase Programme will run until the coronavirus is deemed to be over.
ECB president Christine Lagarde tweeted: “Extraordinary times require extraordinary action.”
Last week, the ECB announced a package of support for businesses, banks and households. Central banks around the globe, including the US Federal Reserve and the Bank of England, have been launching emergency measures to combat coronavirus’ economic impact.