Central banks are stepping in to stop the financial disorder
- Brazil's central bank cuts its benchmark rate by 0.5%
- ECB announces a new coronavirus pandemic response, €750bn purchase program
- ECB's Lagarde says there are no limits, determined to use full potential of our tools
- Fed broadens its support program for the flow of credit to households, business
- RBA announce cuts the cash rate to 0.25%
But sadly, all of this is not working. Equities are still being sold off heavily and the market seems less than convinced that any of these measures will provide sufficient or adequate relief during such distressing times like now.
The Fed move is largely to look after mutual funds in fear that their value will fall drastically and there will be a run on the funds by retail investors.
Meanwhile, the ECB continues to focus on the bond market more than anything else but again, these are just temporary fixes to the problem. And without fiscal stimulus to back their policies, the effectiveness of these measures will still be very questionable.
As for the RBA, that's their final rate cut (you can officially bury the carry trade now) as they dive into the QE realm. However, with the RBA, they are focusing on targeting bonds on particular points on the curve rather than performing large-scale purchases.
In that lieu, the RBA QE looks more like a price and guidance tool (think yield curve control) rather than one that stimulates liquidity and I'm not sure that is what the market is looking for in this particular point in time.
