Covid-19 crisis: US emergency rate cut 'not a real turning point'

Global stockmarkets rallied and then faltered again yesterday after the US central bank’s first emergency rate since the 2008 financial crisis left many investors still fearing the economic fallout of the coronavirus.

The half-point cut by the US Federal Reserve came soon after the finance ministers of the G7 group of the largest economies pledged action to stop the world economic growth from stagnating.

The G7 statement led to expectations that other central banks would follow through, although there is widespread scepticism whether any measures taken by the ECB will have much effect to protect the eurozone economy because interest rates are already at rock- bottom levels.

“We doubt that the rebound in global equities since Friday, including the initial leg up today after the Fed’s 50 basis point rate cut at an emergency meeting, means that we’re at a real turning point just yet,” Capital Economics said.

“And the underwhelming G7 statement published earlier suggests that policymakers in other major economies are still dragging their feet”, it said, adding that “meanwhile, the coronavirus continues to spread rapidly”.

European stockmarkets, including the Iseq in Ireland, closed 1% higher but left shares still nursing substantial losses over the past week.

Ryanair shares rose 2% in the session but AIB fell over 2% and Bank of Ireland 2.5%.

Chris Beauchamp, chief market analyst at online broker IG, said that “the G7 meeting had delivered little, but the Fed has stepped into the breach once more”.

“Suggestions that the ECB may lend directly to smaller businesses show that central banks are looking to move, and move big, in a bid to stave off serious economic harm,” he said.

Federal Reserve chair Jerome Powell said that the coronavirus would weigh on the US economy for some time.

He said he believed the central bank’s action would provide “a meaningful boost to the economy.”

“We saw a risk to the outlook for the economy and chose to act,” Mr Powell said.

Lee Evans, head of foreign exchange trading at Bank of Ireland Markets, said that the US emergency rate cut was the first since “around the time of the Lehman crisis”.

“Currency markets are now watching to see if other central banks will follow suit. However, with limited scope for monetary stimulus outside of the US, attention is centred around fiscal stimulus, particularly in Europe,” Mr Lee said.

“For Irish businesses with international trade, the increased volatility in currency markets is likely to impact profit margins on overseas trade at a time of uncertainty around supply chain disruption,” he said.

In Ireland, the focus continued to fall on preparations by companies and banks are making should the corona-virus spread further.

Travel companies and airlines are also waiting for the news on decisions for major events, including the St Patrick’s Day festival.

Head of business group Isme, Neil McDonnelxx, said that it was concerned about the outlook for the Irish economy.

There were “dozens of calls to Isme, voicing real concerns over Brexit, corona-virus, an overdue recession, and the next government’s tax and spend policies,” he said.