The state of the global financial system in the context of the coronavirus covid-19 pandemicJohannes Röll 26 / February / 20 Visitors: 299
The challenges that the global economy is now facing, shocked by the evolving COVID-19 pandemic, are, without exaggeration, unique. For the first time in history, we are witnessing how an epidemic has dramatically brought down economic activity around the world.
What is happening on the global financial markets cannot be called otherwise than an ideal storm. The level of volatility at the center of this storm surges. US markets move intraday with an amplitude of 5-10%, several times changing direction within the same trading session. Despite the fact that the last 5 years, average fluctuations within the day were limited to 1-1.5%. However, there are general trends. One of them concerns the state of the American currency, which has shown the best results since 2008 for the third week in a row and is rapidly approaching its highest point since 2001 and 2002.
USD PREDICT FORECAST:
• The US dollar is taking off, because there is a SEVERE LACK of LIQUIDITY on the market, as a result of which not only individuals but also LEGAL ENTITIES rely on cash (CASH, aspeoplesay, ISGOD - cash, as people say, THIS IS OUR EVERYTHING !!!)
• The approaching peak in the spread of coronavirus only contributes to a growing cash shortage.
Looking into the future, it should be emphasized that in this situation the efforts of the leading countries' governments will focus, on the one hand, on supporting the national, and, therefore, global economy in the context of the ongoing crisis, and on the other, on primarily supporting their currencies.
Within the framework of the implementation of the first direction, it is BEYOND ANY Doubt that we should expect the development and implementation of national monetary and fiscal measures to stimulate the DEVELOPMENT OF THE ECONOMY, A, EVALUATING REALITIES - PREVENTING AN UNCERTAINTLY APPROXIMATING RECESSION.
Central banks around the world have lowered lending rates and flooded markets with cheap credit. Governments have also taken steps to give out cash (the United States, for example, and more), as activity falls and unemployment rises. However, cheap financing and subsidized purchasing power are not a sufficient incentive to stimulate a boom in investment and consumption, when most of the world trade is for REASONABLE REASONS in decline, if only because many people are sitting in conditions of SELF-INSULATION OR, UNFORTUNATELY, ALREADY even HOSPITALIZATIONS.
The pace and spread of COVID-19 coronavirus infection, thus, BECOMES a critical factor of rapidly declining HOW BALZAKOVA SHARENOVA SKIN, ECONOMY and EXCLUSIVELY BAD sign for investors. EXPECTING the peak outbreak of coronavirus infection is currently a limiter to any significant manifestation of investor interest.
For example, Bloomberg's financial performance in the US shows a sharp deterioration. As a result, the volume of loans to the US economy fell to the lowest level since 2009. And this, despite the reduction in the credit rate, carried out by the Fed 10 days ago.
However, as the table and graph above show, the global, primarily European, economy is in an even more recessive situation.
In the grandfather, the US dollar has not had such a successful week since the 2008 global financial crisis. Of course, there is no doubt that the US economy will be severely affected by the COVID-19 pandemic, BUT, AS A PERCENTAGE OF OTHER GDP, OTHER COUNTRIES WILL BE SIGNIFICANTLY GREATER LOSSES. Despite the fact that due to the decision taken by several states on quarantine (and these are monsters like California, Texas, New York and Pennsylvania, which together provide 35% of US GDP), last week (March 16 – March 21), the index value DXY grew by more than 3.3% /
This happened due to the fall of the euro by 3.5%, the Japanese yen - by 2.25%, the pound - by 4%, and the Australian dollar by a record 5%.
For our readers, the main question is whether the US dollar will maintain its extremely high asset status, most importantly, and whether it will grow in the coming week.
Our answer is “YES. And that's why.
1. As we noted above, the Fed lowered interest rates to almost zero, restarted QE and provided support to entrepreneurship development funds.
2. Starting yesterday, the same Fed plans to spend $ 70-75 billion every day this week (Every day!), Buying out treasury bonds and buying out mortgage bonds almost as much.
3. Daily and urgent repo rates reduced to zero.
4. A program for lending to small and medium-sized businesses for the duration of the coronavirus pandemic is being developed
5. President Donald Trump's stimulus package can quickly pass the Congressional vote, which could further strengthen the dollar.
The markets reacted more quickly than ever. Futures on major US indices, falling over the past two weeks by 2.5-3 percent, won back to zero. The price of gold increased by 1.93%, Brent crude oil - by 1.96.
President Donald Trump's stimulus package could quickly pass the Congressional vote, which could further strengthen the dollar. By the way, this is also evidenced by the values of the exclusively respected CONSUMER MOOD INDEX OF MICHIGAN UNIVERSITY, which I exclusively respect.
The PMI index is a macroeconomic indicator characterizing the state of the world and national economies and the prospects for their development differentially in the field of industry and the provision of services, based on the results of a specially organized observation (survey) of managers of leading multinational corporations and enterprises.
Preliminary March PMI indices released on March 24, 2020 recorded a crushing collapse in business activity in the services sector, where business activity was down 9.1 points from 49.6% in February to 40.1% in March. It should be noted that these data were significantly worse than expected.
At the same time, the dynamics of the index values characterizing the state of the industrial sector, where the failure in March turned out to be weaker than the market expected, cannot but arouse a feeling of optimism. True, we are afraid that this is a temporary phenomenon. The epidemic continues to accelerate, and quarantine measures continue to intensify. So, probably, the peak of the recession will fall next month. The values of this index practically coincide with the values of the business activity index (PMI - PurchasingManagementIndex).
But we should dwell on risk factors for the US currency. Among which, the most significant MAY BE THE COORDINATED currency intervention of the EU MEMBER COUNTRIES.
It is quite natural that in connection with the UNEXPECTED growth of the dollar, which has led many currencies to multi-year lows, the central banks of leading countries are developing and are already starting to take appropriate ones, among which the main should be a coordinated sale of the dollar. Individual central bank interventions rarely have a lasting effect on currencies, but large-scale measures can hold back the dollar and calm stock markets. It should be noted that only a discussion of the plans for coordinated intervention of the central banks of the EU member states has already yielded results. So, yesterday (March 24), the euro / dollar exchange rate rose by 0.9%.
In this regard, let's expect how the Central Banks of the EU countries and, most importantly, the European Central Bank, which, as you know, are completely independent of other EU institutions, will answer this maximum of next week. I would like to believe that after the peak of the pandemic has been passed (and it has already been passed in China, as you know), the recovery of markets will be very fast, and new forms of interaction between people, including remote work, will even give economies a new impetus for growth due to saving on labor costs.
The question arises, which model of organization of the national economic system in an extremely complex and turbulently developing competitive environment should Ukraine choose?
Answering this question, we note that on the principles of liberal, neoliberal, libertarian, etc. economies do not come out of the crisis in which Ukraine is! We affirm this, based on an analysis of the modern economic history of Ukraine, during which our national economy had only periods of decline (1991-2000), (2008-2009), (2014-present) and recovery periods, BUT NO SUSTAINABLE growth. And each time we came out of the crisis, applying rather strict principles of economic regulation! At the same time, giving maximum freedom to private business, first, to small and medium, but subordinating its development to the interests of the whole society, the entire national economy. Add - creating the appropriate market conditions for this. In the form of a wide range of purely market instruments - tariffs, preferential taxation, lending, etc. those types of activities and enterprises that produced products, for example, socially necessary and significant, focused on import substitution, etc.
And then, ladies and gentlemen, having restored the economy, creating its strong skeleton, necessary to ensure high and sustainable growth rates, the above-mentioned principles of economic liberalism in one form or another can be widely applied.
And we want to end with the words that have already become familiar to our team of economists and economists recently that we have adapted to the current conditions of development of Ukraine the principles of planned economic regulation on the BASIS of the IDEOLOGY OF DEMOCRATIC SOLIDARISM. The essence of which we told readers in one of the previous articles, highlighting the basic principles of democratic solidarity and the peculiarities of applying its specific technologies in specific conditions of place and time.
Johannes Röll was born 1978 in Brilon,Germany. Graduated RWTH Aachen University. Over the past ten years he worked as Head of the plastic card team, where he was mainly responsible for the development of the distribution, Head of sales Department and Financial Analyst,where he got experience in planning and support sales figures for branches. For the present he works as freelancer