Strategy specialist Timothy Ash shares his thoughts on why decentralised action could be stalling market stabilisation.
We have seen a flurry of policy responses from governments and central banks in recent days trying to shift sentiment, but what is striking to me is that markets seem to be unwilling to turn.
Why? These are my immediate thoughts…
First, we are in unprecedented times. None of us have ever been through this, with health and economic risks combined with market liquidity and technical issues. Additionally, we’re facing physical market functionality risks with so many investors and traders working from home.
Second, there’s the policy response. If you add up all the various monetary and fiscal actions being rolled out, the total is huge – certainly rivalling 2008/09. We’re hearing talk of trillions of dollars’ worth in stimulus measures, plus 100s of basis points worth of rate cuts across the board from a range of central banks.
I believe the problem here is that it’s all largely uncoordinated. It seems to be a case of every country for themselves, which is quite different to 2008/09, where you got a firm sense of joined-up, multilateral thinking.
On the lack of unified thinking, my mind is taken back to the rise of populism, Brexit, Trump, trade wars and de-globalisation. It seems plausible that the Covid-19 outbreak will only accentuate these issues when the dust settles.
Remember in 2008/09 when we had an active G7 and the G20 was created – where is the G20 now? It has been silent.
Additionally, we have new management across a range of central banks and international financial institutions, from the Bank of England, European Central Bank, World Bank and International Monetary Fund. These teams are being stress-tested to the full. This raises the question: are there the kind of personal relationships in place that are often so important in these situations?
Ultimately, we are all looking for turning points – the ‘whatever it takes moment’ – but I believe the problem here is that until we see a turn in the health situation, particularly in the US, it is hard to make any firm assessments of the costs of any of this.