COVID-19 Update: For every Action there is an Equal and Opposite Reaction
Mar 25, 2020 | Frank Sakellariou
As we continue to monitor developments with respect to the spread of the Coronavirus, government responses, and implications for economic growth and the markets, we thought it would be important to share specific details of actions being taken by central banks and governments around the world.
“For every action there is an equal and opposite reaction” – Isaac Newton’s 3rd Law of motion.
There is no doubt that the Coronavirus has created massive ripples across the globe affecting all aspects of life. As we live through these tough moments, we can be reassured that this event has prompted equally massive monetary and fiscal responses globally by governments and central banks.
Central Banks and governments have taken aggressive steps to stimulate the economy and ensure the liquidity of the financial systems. To name a few, the U.S. Central Bank (The Fed), Bank of Canada, the European Central Bank and the Bank of England have already aggressively cut interest rates. On top of this, many central banks around the globe have massively increased their asset purchase programs to provide as much liquidity to the system as possible. We are starting to see the reintroduction of many of the programs that were last seen during the depths of the financial crisis.
“The place we can add the most value is making markets function.” - Federal Reserve Bank of Richmond president Thomas Barkin
To learn more about the specific roles that Central Banks play during periods of large volatility to ensure the stability of the financial system, I invite you to read this recent RBC Wealth Management article by clicking on the following link: Central bank policies are in a race with coronavirus
“investors can take some solace in the fact that the Fed not only has the tools but also the prior experience of using them to facilitate market functioning, and rapidly so.” – RBC Wealth Management’s “Central bank policies are in a race with coronavirus”
History has shown us that central bank stimulus is more effective when deployed hand-in-hand along with fiscal government policies. The combination of central banking monetary stimulus along with government fiscal stimulus can be a powerful tool for combating periods of intense uncertainty and economic dislocations.
“Fiscal policies can come in many guises including: state guaranteed loans to corporations; company bailouts; cash handouts to households; sick pay (or more generous statutory sick pay); government subsidies for underutilized workers; tax deferrals/rebates; and mortgage and rent deferrals/rebates.” - RBC Wealth Management’s “Fiscal stimulus joins the fight against coronavirus”
Please click on the following link to learn more about what governments around the world are doing and what specific tools are being implemented to soften the blow: Fiscal stimulus joins the fight against coronavirus
This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information. The strategies and advice in this report are provided for general guidance. Readers should consult their own Investment Advisor when planning to implement a strategy. Interest rates, market conditions, special offers, tax rulings, and other investment factors are subject to change. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. ® / TM Trademark(s) of Royal Bank of Canada. Used under licence. © 2020 RBC Dominion Securities Inc. All rights reserved.