The Day at a Glance | March 4 2020

Worldwide monetary stimulus begins

The Federal Reserve decided to cut interest rates in 50 bps yesterday after having an emergency meeting, placing federal fund rates at 1.25%-1%. The decision was taken in response to a “material change in perspective” due to the risk that COVID-19´s spread entails for economic activity. In a press conference, Federal Reserve President Jerome Powell assured the Central Bank had decided to act given the recently growing risks in spite of the economy´s fundamental aspects remaining strong. Additionally, he guaranteed the use of all monetary tools available in order to counter the effects the virus has on the economy, however, he did point out the limitations monetary policies have on completely resolving the issue: Accurate health policies are also necessary, as well as a supportive fiscal policy. The FED did not discuss other stimuli other than cutting interest rates, which discards the possibility of reactivating short-run asset purchasing programs. However, demand for liquidity has increased substantially regarding the Bank´s operations in repo markets in recent days, which is why this issue is expected to be brought up in March´s meeting statement. Markets expect to see similar actions in other economies: the ECB is expected to reduce interest rates in 10 bps soon in order to plunge it into negative grounds (-0.6% e.) and increase the asset-purchasing program by 20 billion euros; meanwhile, the Bank of England ins expected to cut rates more aggressively and Japan contemplates more aggressive stimulus programs. In Mexico, the country´s Treasury, as well as its Central Bank, have continued talks on the assessment of the virus´s risks, even though the Treasury´s secretary, Arturo Herrera, has assured the impact of the virus is limited. “We should be careful”, Herrera said, referring to the limited fiscal space the Treasury counts on to carry out stimulus.

Positive results for Biden on Super Tuesday

Ex Vice-president Joe Biden won important victories yesterday in southern United States, positioning himself as a strong contender in the Democratic nomination. Biden won Minnesota, Virginia, North Carolina, Massachusetts and Texas, among others, due to support from the African American community and the withdrawal of other moderate democrats. These results rekindle Biden´s candidacy and increase his chances of beating Trump (according to Democrats) in a race that will most likely be set between him and Bernie Sanders. Sanders won California, state that gives more voters in primaries, which keeps him in the fight. Michael Bloomberg and Elizabeth Warren were unable to improve their numbers and will have to decide whether they will continue or withdraw. More voting in various states will come about in following months and conclude in the Democratic National Convention, due to take place July 13th-16th.

OPEC+ meeting approaches

The OPEC´s (Organization of the Petroleum Exporting Countries) Joint Technical Committee increased its recommendations for production cuts in order to stabilize the crude oil market at a global level. The Committee now suggests cutbacks of a million barrels per day (vs 600 thousand prev.), which would add to the current 2.1M. OPEC+ will begin meetings tomorrow in Vienna, Austria, in order to make a decision (March 5th-6th), after an almost 27% drop in crude oil prices since January. Most current cutbacks taken are on behalf of Saudi Arabia and it´s unclear if the country will be able to carry out any more, which increases pressure on other members of the Organization (such as Russia) regarding a substantial cut in production. An aggressive cut in production within the next few days could boost oil prices, but expectations are divided.