March 2, 2020
It doesn’t hurt that the Bank of Japan came out buying Japanese stocks in record amounts last night — and likely buying other global stocks and commodities. This (explicit engagement in financial markets) is already within the monetary policy toolbox of the Bank of Japan. And as we know, the central bank in China has been in the business of supporting markets since early February. Chinese stocks were up 3% over night.
So, we have major central banks propping up financial markets. And we have chatter over the weekend of fiscal stimulus coming in Italy, and supportive “ready to act” commentary from major central bankers.
But as we discussed last week, we need major governments to come together, in coordination, on a containment strategy and a stimulus plan for the global economy. Perhaps the most fear-inducing part of the pandemic story has been the lack of trust and lack of collaboration between countries — isolationist-like behaviors, which only increases the probability of a worst-case outcome. So, collaboration and coordination are key to restore confidence.
Good news: That global “coordination” has now, to a degree, been telegraphed. An emergency call with G7 finance ministers and central banks has been scheduled to take place tomorrow.
That said, the finance ministers and central banks is important, but I suspect we need to see G7 leaders convene and draft a statement.
Remember, we didn’t see a bottom in the markets during the global financial crisis, until the G20 leaders pledged to work together to resolve “a global crisis with a global solution.” That was the turning point for global markets and for global confidence. G7 officials need to deliver a message of unity and a promise to do “whatever it takes.”