In this first paper in our series on the cross-country monetary aspects of the COVID-19 related economic crisis, we look at the responses of major central banks, which increased their balance sheets with large-scale open market operations and/or quantitative easing. Even though most central banks engaged in a combination of interest rate cuts and balance sheet increasing operations, the end effect varied greatly across countries.
Covid fears battle vaccine hopes, how is it moving markets?
We start the week in a fairly quiet fashion on scheduled global data releases. However, in the Nordics focus will start out with Swedish October inflation and Danish Q3 GDP both to be released this morning. For details see the Nordic Macro Section below.
Investors should keep in mind that the coronavirus is still a big factor that could likely move financial markets. Recently, coronavirus cases have been growing in the United Kingdom with a whopping 45,140 new cases, the highest number of cases in 3 months, reported on Sunday.
In the second paper in our series on different cross-country monetary aspects of the COVID crisis, we look at the role of government liquidity management. When the crisis hit last year, debt management offices build large liquidity buffers on deposit accounts amounting to around 6-13% of GDP. Quantitative easing no longer is just about supporting bank liquidity. Now it is also about supporting public liquidity.
How covid-19 impacts markets
The first case of Coronavirus (COVID-19) appeared in December 2019 in Wuhan, China. Since early 2020, this disease has spread rapidly, generating medical crises, overwhelming hospitals and prompting governments to enact lockdowns around the world.
During the first months, investors responded with a sharp panic-selling response to the possible economic collapse, typical to such black-swan events.
The pandemic had a wide-ranging and severe impact on financial markets, including stocks, bonds, and commodities. Governments and central banks moved to shore up the economies. It also had a substantial influence on businesses around the world. The uncertainty related to lockdown durations and economic recovery left many businesses closed and hit households hard.
It also had a substantial influence on businesses around the world. The uncertainty related to lockdown durations and economic recovery left many businesses closed and hit households hard.
From late 2020, vaccination efforts allowed many major economies to fully open but the Delta variant revived concerns over new restrictive measures around mid-2021. Although countries were able to avoid lockdowns, supply bottlenecks caused by the virus outbreak started to ramp up price pressures. Central banks are looking to set their policy in a way to battle inflation while keeping the growth momentum alive.
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Coronavirus in United States
US economic data released on Tuesday came in above expectation, with a Consumer Confidence measure rising unexpectedly. According to analysts at Wells Fargo, favourable views of the labor market helped to fuel gains in both the present situation and expectation measures and lifted the Consumer Confidence headline index to 113.8 from 109.8.
“It’s too soon to say it’s stalling, but certainly we’re seeing the pain of Covid, and the pain of the delta variant,” “Covid is not behind us, so I don’t expect the job market to just be continuous. It is going to have these ups and downs.”
"Many of us are frustrated with the roughly 80 million Americans who are not vaccinated," said US President Joe Biden while announcing details of his six-pronged strategy on Thursday night.
Coronavirus in Europe
Despite the serious problems with the availability of COVID-19 vaccines, the vast majority of people in the United States and Europe will have been vaccinated by the summer, so the public health situation will be largely the same in these parts of the world. However, despite the homogenization of these areas, it remains uncertain how long it will take people and businesses to return to pre-pandemic conditions. Travel recovery, for example, will be slow. The European Union is likely to introduce quarantine-free cross-border crossings for those with vaccine passports, but restrictions on long-distance travel will remain in place for a long time to come.
Border controls between the vaccinated rich world and the unvaccinated poor world are likely to become stricter, especially if new mutations of the virus continue to appear.