Market Overview

Friday's Market Minute: Busy Week For Central Banks

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Friday's Market Minute: Busy Week For Central Banks

It was an eventful week for the world’s largest central banks as the Bank of Japan, U.S. Federal Reserve, and European Central Bank held scheduled policy meetings. These three institutions altogether cover nearly half of the global economy. Bank of Japan began the week Monday by cutting the limitation on buying government-issued bonds while also increasing its purchases of corporate debt. The Federal Reserve Wednesday was par for the course. Chairman Jerome Powell announced holding the benchmark interest rate near zero for a year and potentially longer. Powell did not undermine the lasting effects of Covid-19, restating the severe surge in job losses and the “tremendous human and economic hardship” ahead. The meeting statement also confirmed the Fed’s objective of unlimited quantitative-easing asset buys.

Last but not least, on Thursday the ECB increased its efforts to hedge some of the damage caused by the economic downturn. According to preliminary estimates from Eurostat, the European economy has contracted by a record 3.8% in the first three months of 2020, versus the same period last year. This signals the greatest decline since recordkeeping began in 1995, and worse than the 2009 recession. As a result, the institution announced a lower interest rate on a program of loans offered to banks, known as “targeted long-term refinancing operations.” This allows banks that lend enough cash to customers to borrow from the ECB at a rate of -1% beginning in June. Banks who do not meet the lending amount will still be able to borrow at a rate of -0.5%. In addition, the ECB has created “pandemic emergency longer-term refinancing operations” as a new effort to ease stress in short-term funding markets. The Euro Stoxx index fell roughly 1.9% following the news Thursday.