Bank of England governor not excluding negative rates
21 May

Bank of England governor not excluding negative rates

 

The devastating impact of the coronavirus on the euro zone economy abated a little this month as some government-imposed lockdown measures introduced to contain the spread of the virus were eased, a survey showed. Having crashed to its lowest reading in the survey’s nearly 22-year history last month, IHS Markit’s Flash Composite Purchasing Managers’ Index, seen as a good gauge of economic health, recovered to 30.5 from April’s 13.6. The ongoing slump comes despite the European Central Bank pledging to buy more than 1 trillion euros in assets this year and governments outlining hundreds of billions in spending plans to support businesses and households. Nationally, Germany’s private sector recession eased in May rising to 31.4 after hitting a record low of 17.4 the previous month. It also rose in France reaching 30.5 from a record low of 11.1 in April. The euro zone’s second-biggest economy suffered its deepest contraction since modern records began in 1948 in the first quarter, shrinking 5.8% from the previous three months.

The dollar edged higher as Sino-U.S. tensions and weak economic indicators in Europe dented sentiment after hopes of a quick economic recovery and further stimulus fuelled an overnight rally on Wall Street. The euro eased down 0.1% to $1.0968, giving up some of the gains secured after a Franco-German proposal for a pan-European Union fund leading the bloc closer to a fiscal union. The pound remains under pressure against the greenback, slipping 0.3% to $1.2222, as well as against the euro, with a 0.3% fall at 89.78 pence per euro. Japan reported its steepest drop in exports in more than a decade and cratering factory activity sending yen down 0.3% at 107.76 per dollar. The risk-sensitive Aussie was last at $0.6573 down 0.4%. The dollar also rose 0.1% against the yuan to 7.108.

Governor Andrew Bailey said the Bank of England isn’t excluding the idea of taking borrowing costs below zero as it tackles the economic impact of the coronavirus keeping all options on the table while admitting that such a policy had gotten "mixed reviews" elsewhere. The comments came after Britain sold bonds with an average yield below zero for the first time after inflation slowed to the weakest level since 2016. FTSE fell to 6021 following a rebound to 40.6 on its manufacturing PMI but weak Services PMI which remains below that of the euro zone.

Japan’s exports fell the most since the 2009 global financial crisis in April as the coronavirus pandemic slammed world demand for cars, industrial materials and other goods, likely pushing the world’s third-largest economy deeper into recession. The central bank will hold an emergency meeting tomorrow to work out a scheme that would encourage financial institutions to lend to smaller, struggling firms. Policymakers are also considering cash injections for companies of all sizes. Ministry of Finance data showed Japan’s exports fell 21.9% in April year-on-year as U.S.-bound shipments slumped 37.8%, the fastest decline since 2009, with car exports there plunging 65.8%. Exports to China, Japan’s largest trading partner, fell 4.1% in the year to April, due to slumping demand for chemical materials, car parts and medicines. Japan’s economy slipped into recession for the first time in over 4 years, putting the nation on course for its deepest postwar slump as the pandemic ravages businesses and consumers.

 

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