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21 Mar 2016
Dovish central banks support global financial markets – Danske Bank
Research Team at Danske Bank, suggests that the world’s major economies have held central bank meetings during March and across the central banks there has been a convergence in sending a common message that it is appropriate to keep policy rates ‘lower for longer’.
Key Quotes
“Hence, although we did not gets a coordinated policy response following the G20 meeting at the end of February, it seems that there has been more of a coordinated move towards a dovish stance, which has been individually and gradually revealed.
The coordinated move towards a more dovish stance among the major central banks has supported global risk sentiment. Moreover, some of the individual policy responses seem to have been particularly aimed at reducing the systemic risk.
• The ECB took a first step in reducing the systemic risks by including corporate bonds in the QE universe and offering very cheap funding to banks in the new TLTRO II loans. This followed as it reduced the risk of a spill over to a financial tightening from pressure on European banks and the corporate bond market.
• The Fed was surprisingly dovish, which also reduced the systemic risks as the dovish stance has supported emerging markets assets as well as commodity prices, which were also under severe stress at the beginning of February. The Fed now seems less eager to raise policy rates, as it now only signals two hikes (down from four) reflecting that it believes ‘global economic and financial developments continue to pose risks’ (‘Concerned Fed sends very dovish message to the markets’, 16 March).
The recent central bank moves come at the right time to support a still fragile global recovery. Our business cycle model (macroscope) points out that the economic outlook in Europe has recently turned more bearish, while the US outlook looks a bit stronger without being rock solid. This week, US survey data was very strong and suggests the US manufacturing cycle has turned, which reduces the fear of a US recession.”
Key Quotes
“Hence, although we did not gets a coordinated policy response following the G20 meeting at the end of February, it seems that there has been more of a coordinated move towards a dovish stance, which has been individually and gradually revealed.
The coordinated move towards a more dovish stance among the major central banks has supported global risk sentiment. Moreover, some of the individual policy responses seem to have been particularly aimed at reducing the systemic risk.
• The ECB took a first step in reducing the systemic risks by including corporate bonds in the QE universe and offering very cheap funding to banks in the new TLTRO II loans. This followed as it reduced the risk of a spill over to a financial tightening from pressure on European banks and the corporate bond market.
• The Fed was surprisingly dovish, which also reduced the systemic risks as the dovish stance has supported emerging markets assets as well as commodity prices, which were also under severe stress at the beginning of February. The Fed now seems less eager to raise policy rates, as it now only signals two hikes (down from four) reflecting that it believes ‘global economic and financial developments continue to pose risks’ (‘Concerned Fed sends very dovish message to the markets’, 16 March).
The recent central bank moves come at the right time to support a still fragile global recovery. Our business cycle model (macroscope) points out that the economic outlook in Europe has recently turned more bearish, while the US outlook looks a bit stronger without being rock solid. This week, US survey data was very strong and suggests the US manufacturing cycle has turned, which reduces the fear of a US recession.”