With their non-scheduled and extraordinary interest rate reduction of 0.5 percent of the US Central Bank has missed its primary goal on Tuesday. On the capital markets, not calm. On the contrary, On the stock exchanges in the run-up to the decision, rising rates have taken an immediate u-turn. To resulted in trading losses between 2.8 and 3.2 percent, depending on the Index days. After all, the courses note on Wednesday, again in the Plus – measured at the Future-markets of the markets is to be expected at the opening with rising stock market prices in the United States.
Central to the US-based Bank, but also the capital markets: The yields of 10-year state bonds of the USA (Treasuries) have fallen in the Wake of the decision, for the first Time in their history under 1 percent. That alone is a sign of Stress in these markets, because it means that this safe haven bonds are in demand, despite falling interest rates in the United States like never before.
And that’s not the whole story: The decrease in the yields of safe bonds, with the result that the difference (the so-called Spreads) increased the interest rate of high-risk bonds. So corporate bonds, which are stronger than others at risk, to be able to your debts do not settle. The Coronavirus triggered strong economic slowdown would make it difficult for such companies to repay their debts; it would be for these companies is also difficult to get new money. Also, falling share prices in the last week will tighten the financing conditions, because shares are used to hedge for the loan portfolio.
fear of a “Credit Crunch”
for all these reasons, in the financial media of the danger of a possible “Credit Crunch” the speech: a Situation that is meant in the companies no credit are able to obtain, neither on the capital market via bonds through the banks. Among analysts, the Thesis that the tension on the capital markets has been in the run-up to an important reason for the interest rate move by the Fed on Tuesday has been circulating.
when asked about this, said Fed Chairman Jerome Powell, in his press conference after the interest rate decision, financial markets would function normally. However, the US Central Bank supplies the financial markets due to the tensions of now, with exceptional splash.
It was the low interest rates and on Tuesday again confirmed the expectation that the Central Bank engages in an emergency, always were, which has led investors to Take higher risks. Therefore, companies were able to borrow as measured by its credit to cheap. And in many cases, these have not used the money for investments in their business, but for stock buybacks (which fuels the price of the Treasury shares), and for company acquisitions. Both helped the Management to get higher bonuses.
another reason to not calm down which is why the actions of the Fed sustainably can, is the realization that the US Central Bank is getting closer to the edge of their capabilities. In the event of a recession, interest rate cuts were up to an extent of 5 per cent is necessary. After the reduction, on Tuesday, the guiding principle is in the US now, only in the case of a target band of 1 to 1.25 percent.
end of options
Much worse for the Europeans, however, are. The European Central Bank with its Deposit rate for Bank deposits already at minus 0.5 percent, the Swiss national Bank minus 0.75 percent. Although both are likely to be affected by the recent and further interest rate cuts by the Americans, under pressure, have further interest rate cuts into negative territory here, apart from negative side-effects, only a symbolic character.
Anyway Central banks to improve the situation in connection with the Coronavirus can’t contribute too much. When the production breaks chains due to absent Employees or interrupted value-added, it helps a little when, thanks to lower interest rates or additional money to the surges in demand can be increased. It is also possible that the action of the Fed is primarily focused on a calming of the capital markets.
As a further reason for the lack of effect of the interest rate reduction by the Fed, the disappointing international cooperation is called. Although the Finance Ministers and Central Bank heads of the G-7 countries have pledged in a joint statement yesterday, to do everything Necessary to prevent a crash of the economy. Is mentioned in the announcement but not a single measure and not a commitment to a common approach. As the world economy after the financial crisis in free fall, have become the leading countries on common measures of fiscal and monetary policy will be able to communicate, which materially helped to overcome the crisis. Of which nothing is now to be seen.
the opposite is the case: After the interest rate decision yesterday, US President, Donald Trump emphasized once more that even in the case of measures against the economic consequences of the Virus the competitive struggle between the countries. The danger is so great that, in spite of their limited possibilities, all the Central banks are stuck.
Created: 04.03.2020, 15:40 Uhr
