Connect with us

Business

Black Monday puts pressure on the ECB

March is a black month for the world’s stock markets and the European Central Bank. Investors’ doubts about how the coronavirus outbreak is affecting their positions are leading to a general sale of their shares. The Ibex 35, after losing 12% of its value in two weeks, suffered another collapse, with a decline of more than 8%. The European supervisor will have to counteract the market situation.

Published

on

This picture show a city at night.

“Throw more wood on the fire” is the mantra that is reaching the European Central Bank (ECB) from all areas of world finance. This week, the ECB chaired by Christine Lagarde has an important role to play in the meeting with the institutions it supervises, which will not be easy to deal with. The European supervisor has no choice but to counteract the market situation – the crisis of the coronavirus and the oil war – with new weapons related to monetary policy.

The Spanish oil company Repsol suffered a 13% collapse on Monday, March 9th. BBVA, Santander, and Sabadell, on the other hand, gave up nearly 10%. The Ibex suffered its blackest day since Brexit.

Discover the latest banking business headlines, find out important happenings in the banking sector as well as financial analysis with the Born2Invest mobile app. Keep up to date with the latest financial stories from the business sector updated throughout the day.

A measure that can help companies affected by the economic situation

The ECB is practically forced to take drastic measures and, as the helicopter money still seems to be a science fiction option, the rate cut becomes a way to alleviate the current tension.

That is a measure that would help companies affected by the challenging economic situation. It is also a solution that would end up taking the banking sector to an extreme situation, where there would be no room for them to continue on their own without a new wave of mergers. Spanish institutions have a major solvency problem, which has been exacerbated by this environment of negative rates and which has lasted longer than expected.

SEE ALSO  Why should you follow sustainable investing strategies?

In addition, the Federal Reserve has lowered interest rates in the U.S. by 50 basis points. This was made to combat the risk of coronavirus outbreak on the U.S. economy. It did so last week in advance of the scheduled meeting. In Europe, the counterpart body has chosen to keep up appearances and decided to stick to the planned schedule. The ECB will meet this Wednesday, March 11th, and Thursday, March 12th. Christine Lagarde will explain the measures taken at a press conference.

The analysts’ vision of central banks to deal with the impact of the coronavirus

Experts hope Christine Lagarde will follow the example of Jerome Powell, president of the Fed. It is also assumed that the European Central Bank will provide liquidity through other measures. However, analysts warn that the supervisor has fewer options than other central banks to deal with the impact of the coronavirus.

According to Fidelity, the ECB “has less monetary ammunition to put in front of a considerable slowdown.”Along the same lines, Sergio Avila of IG Spain stressed that the ECB’s “toolbox” is “increasingly empty.” “With the reference rate at 0% and the deposit rate at -0.50%, its capacity for movement is much more limited,” he explained.

Philip Waechter says the ECB will not lower interest rates

On the other hand, Philippe Waechter, Head of Economic Research at Ostrum AM (Natixis), believes that the ECB will not lower interest rates because its main task “will not be to boost economic activity but to limit the risk of bankruptcy. The ECB could do that by increasing the purchase of corporate bonds and adding new elements to the conditional liquidity auctions (TLTRO), with the aim of adding more liquidity if necessary,” he added.

SEE ALSO  Spotify announced a partnership with new ticketing sites

__

(Featured image by cmophoto.net via Unsplash)

DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.

This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.

First published in vozpopuli, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

Although we made reasonable efforts to provide accurate translations, some parts may be incorrect. Born2Invest assumes no responsibility for errors, omissions or ambiguities in the translations provided on this website. Any person or entity relying on translated content does so at their own risk. Born2Invest is not responsible for losses caused by such reliance on the accuracy or reliability of translated information. If you wish to report an error or inaccuracy in the translation, we encourage you to contact us.

Olivia McCall is passionate about education, women and children’s rights, and the environment. A long-time investor, she covers news about the latest stocks (lately marijuana and tech), IPOs and indices, and is always on the lookout for socially responsible startups. She also writes about the food sector, and has a keen interest on cryptocurrencies.