Archive for Economics & Fundamentals

Sri Lanka cuts rate 25 bps in 2nd emergency move

Sri Lanka’s central bank lowered its two key interest rates by a further 25 basis points at a second unscheduled monetary policy meeting, saying the move should help ease market conditions and provide further relief to businesses and households affected by the outbreak of the coronavirus and the restrictions put in place to contain its spread.
The Central Bank of Sri Lanka (CBSL) cut its Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) to 6.0 percent and 7.0 percent respectively.
CBSL was the first central bank worldwide to lower its rate in January in response to the growing economic uncertainty surrounding the outbreak of COVID-19 in China.
At its scheduled policy meeting on March 4, the central bank maintained its rate but at an urgent meeting on March 16 it then lowered the rates by 25 basis points along with a 100 point cut in its reserve ratio “in light of the urgent need to support economic activity with the rapid spread” of the virus.
CBSL has now cut its policy rates five times and by a total of 200 basis points since May 2019.
The central bank said there would not be a monetary policy announcement on April 9, as scheduled, but the policy stance may be reviewed and changed if necessary “as and when required.”

The Central Bank of Sri Lanka issued the following statement:

“The Monetary Board of the Central Bank of Sri Lanka, on 03 April 2020, decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 25 basis points to 6.00 per cent and 7.00 per cent, respectively, effective from the close of business on 03 April 2020. This decision will complement the measures taken thus far to ease market conditions, and enable the domestic financial market to provide further relief to businesses and individuals affected by the outbreak of the COVID-19 pandemic and restrictions placed to contain its spread within the country.
Note: There will be no monetary policy announcement on 09 April 2020 as scheduled. However, the Monetary Board may review the monetary policy stance of the Central Bank and make necessary changes as and when required in consideration of economic and market developments. 


CORN Analysis: Estimates of increased US corn planting bearish for corn price

By IFCMarkets

Estimates of increased US corn planting bearish for corn price

US farmers plan to increase corn acreage as soybean prices have collapsed. Farmers intend to plant 96.99 million acres (MA) of corn in 2020/21, which would be 7.29 MA above last year’s planting -according to the Planting Intentions survey results by USDA. And falling crude oil prices make corn usage for bioethanol production less attractive, lowering corn demand. Ethanol production per day fell 165,000 barrels over week in the week ending March 27. It averaged 840,000 barrels per day – the lowest weekly production since September 2013. Lower demand and higher expected supply are bearish for corn prices.

Indicator VALUE Signal
RSI Neutral
MACD Neutral
Donchian Channel Sell
MA(200) Sell
Fractals Neutral
Parabolic SAR Sell


Summary of technical analysis

Order Sell
Buy stop Below 335.3
Stop loss Above 354

Market Analysis provided by IFCMarkets

Egypt maintains rates after earlier emergency cut

Egypt’s central bank left its benchmark interest rates steady, saying this would be consistent with achieving its inflation target following the 300 basis point rate cut at an unscheduled monetary policy meeting on March 16.
The Central Bank of Egypt (CBE) left its overnight deposit rate at 9.25 percent, the overnight lending rates at 10.25 percent, and the rate on its main operation and discount rate at 9.75 percent.
The decision was largely expected by analysts, with Egypt’s inflation rate easing to 5.3 percent in February from 7.2 percent in January on favorable base effects and contained inflationary pressures, CBE noted.
CBE targets inflation of 9 percent, plus/minus 3 percentage points in the fourth quarter of this year and price stability over the medium term.
Egypt’s tourism sector has been hit hard by the spread of the coronavirus and the associated containment measures worldwide and CBE said its rate cut on March 16 was a pre-emptive move to support economic activity, especially within households and businesses, and support employment, which is “essential in order to avoid a prolonged slowdown in economic activity and help speed the recovery once the outbreak is contained.”
Egypt’s economy grew 5.6 percent in the third quarter of 2019 year-on-year, down from 5.7 percent in the second quarter.

The Central Bank of Egypt issued the following statement:


“The Monetary Policy Committee (MPC) decided to keep the Central Bank of Egypt’s (CBE) overnight deposit rate, overnight lending rate, and the rate of the main operation unchanged at 9.25 percent, 10.25 percent, and 9.75 percent, respectively. The discount rate was also kept unchanged at 9.75 percent.
Annual headline urban inflation declined to 5.3 percent in February 2020 from 7.2 percent in January 2020, supported by favorable base effect as well as contained underlying inflationary pressures. The decline of annual headline inflation was mainly driven by lower annual food contribution, mainly volatile food items, while the contribution of non-food items remained broadly stable. Meanwhile, annual core inflation declined to 1.9 percent in February 2020 from 2.7 percent in January 2020, the lowest rate on record.
Real GDP growth had stabilized around 5.6 percent in 2019 H2, which was the same level recorded in FY2018/19. Meanwhile, the unemployment rate had recorded 8.0 percent in 2019 Q4 compared to 7.8 percent in 2019 Q3. Nevertheless, employment had been recovering on a quarterly basis for the fourth consecutive quarter.
However, the COVID-19 outbreak as well as the associated containment measures induce a considerable disruption to economic activity and financial markets globally. Furthermore, international oil prices witnessed substantial decline affected by weaker demand in addition to the lack of agreement between OPEC and non-OPEC members on additional production cuts.
The Central Bank of Egypt (CBE) moved preemptively, within its mandate, to support economic activity especially businesses and households. This should support employment in these exceptional times which is essential in order to avoid a prolonged slowdown in economic activity and help speed the recovery once the outbreak is contained.
Against this background, and following the reduction of 300 basis points during the previous unscheduled MPC meeting on March 16, 2020, the MPC decided that keeping key policy rates unchanged remains consistent with achieving the inflation target of 9 percent (±3 percentage points) in 2020 Q4 and price stability over the medium term.
The MPC closely monitors all economic developments and will not hesitate utilize all available tools to support the recovery of economic activity, within its price stability mandate, supported by the previous macroeconomic reforms.”



Europe’s Coronavirus Contraction Part II: Bracing for Contraction and Debt Crisis

By Dan Steinbock     

Since inadequate preparedness prevailed in Europe until recently, the consequent pandemic will cast a prolonged, dark shadow over the regionwide economy – starting with the contraction, followed by the debt crisis.

Around the world, the early economic defense against the economic impact of the novel coronavirus has been by the major central banks to cut down the rates, inject liquidity and re-start major asset purchases.

But as the post-2008 decade has shown, monetary responses cannot resolve fiscal challenges.

Bracing for the plunge

The early damage has focused on a set of key sectors, such as healthcare, transportation, retail, tourism, among others. So easy money will be coupled with targeted fiscal stimuli in affected economies. Yet, current measures to restrict the infection and economic damage will contribute to further debt erosion in major advanced and emerging economies.

Recently, the White House signed the $2 trillion coronavirus bill, the largest ever U.S. stimulus. It may not ensure adequate support for more than 4-6 months. To overcome the crisis, an extended period of 6-18 months may loom ahead when some kind of fiscal accommodation will be needed.

In the US, sovereign debt has increased record fast in the Trump era and now exceeds $23.5 trillion (107% of GDP); that is, before the virus stimulus bill or bills will cause it to soar. And so, we are back in the post-2008 territory that was never supposed to recur. But now, after a decade of ultra-low rates, rounds of quantitative easing and liquidity injections, the situation is much worse.

In the Eurozone, recessionary pressures come in a particularly bad time. Before the virus, the annual economic growth was about 1.0% in the fourth quarter of 2019, signaling the weakest expansion in seven years. However, the first quarter could contract to -3.0%, while the second could be worse than in 2008-9.

In both the United States and the Eurozone/UK, the first quarter damage will only be the prelude to the second quarter carnage. And if the virus is not managed appropriately, the consequent hit will cast a shadow over the hoped-for rebound in the second half of 2020 as well, possibly into 2021.

In Europe, the Maastricht Treaty deems that member states should not have excessive government debt (60%+ of GDP). Today, no major European economy fulfills that criteria. To overcome their short-term challenges, countries will take more debt, which will further erode their debt-to-GDP ratios.

Certainly, central banks in Europe and the UK will follow US footprints into more monetary and fiscal accommodation. But that may fail to quell virus fears, if infection rates continue to soar. As virus mobilization intensifies in European economies, so will new debt-taking.

Even before the virus crisis, Italy’s level of sovereign debt soared from 110% as share of the GDP to the alarming 135% in the course of the 2010s. It will increase a lot faster now. In Spain, the debt crisis of the past decade pushed the ratio from just 60% to a peak of 100% of GDP in 2014. In the past half a decade, it has decreased but that progress will now be reversed.

In France, the ratio climbed from 85% to close to 100% in 2016 but has stayed at that level since then. Those days are now over as the ratio will start climbing. In the UK, sovereign debt was close to 60% in 2010, but soared to close to 85% in 2017, thanks to the impending Brexit. Now the UK will have to face the costs of the Brexit and the virus crisis.

Germany is the only major European economy in which sovereign debt as share of the GDP actually declined in the past decade from 80% to close to 60%. In the past two years, Berlin has been able to offset the US tariff war losses, but now it will have to cope with worse challenges. And when German economy contracts, the rest of Europe will plunge.

The way out

In advanced economies – and particularly in the heavily-indebted European countries, which are already struggling to absorb the costs of the 2008 great recession, the 2010 EU debt crisis, the UK Brexit, and the US tariff wars – the coronavirus contraction has potential to wipe out a decade of recovery. But that’s just a prelude.

Furthermore, if containment measures fail, or subsequent mitigation proves inadequate, or new virus clusters emerge after containment and mitigation, markets will remain volatile and economies will suffer further damage, particularly if multiple waves of secondary infections recur after current restrictive measures.

What is desperately needed is multipolar cooperation among major economies and across political differences. In this quest, China, where containment measures have been successful, can show the way, along with major advanced and emerging powers.

President Xi Jinping’s call on Trump to improve US-China relations amid Covid-19 crisis and cooperate against the virus is a good start.

But isn’t it time for Europe to join the bandwagon?

About the Author:

Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see  For recent coronavirus briefings, see

This is the second part of the commentary that the European Financial Review released online on March 30, 2020 online and will publish in its April/May print edition.

SUGAR Analysis: Expected rise in Brazil exports bearish for sugar price

By IFCMarkets

Expected rise in Brazil exports bearish for sugar price

Mills in Brazil are capable of switching cane toward sugar or ethanol production, depending on market prices. Low crude oil prices make production of bioethanol from sugar cane a less attractive alternative for sugar mills compared to production of sugar. And weaker currency of Brazil – real, makes switching from bioethanol to sugar production more profitable for Brazil’s mills as ethanol is mostly sold domestically while sugar is being exported, earning appreciating dollars for exporters. Brazil’s mills allocated an all-time low amount of cane for sugar last two years – around 34%, as ethanol gave them higher returns. Copersucar, the world’s largest sugar co-op, estimates mills will allocate 46% cane for sugar in the new season. This will increase Brazil’s sugar export by around 10 million tons. Brazil is the top global sugar producer. A rise in sugar supply is bearish for sugar prices.

Indicator VALUE Signal
RSI Neutral
Donchian Channel Sell
MA(200) Sell
Fractals Sell
Parabolic SAR Sell


Summary of technical analysis

Order Sell
Buy stop Below 10.02
Stop loss Above 11.55

Market Analysis provided by IFCMarkets

Market turmoil resumes as virus fears deepen

By Hussein Sayed, Chief Market Strategist (Gulf & MENA), ForexTime

Investors have suffered a tough start to the second quarter due to the coronavirus pandemic. After climbing 17.9% from its low in the past seven trading days, the S&P 500 kicked off the new quarter with a 4.4% decline.

It seems most of the global fiscal and monetary stimulus measures have been priced in and the things that matter most at this stage are the infection and death rates of Covid-19.

Psychology has a great impact on asset prices, and with more people realizing that the virus could reach them in some way or have already infected someone they know, that’s a good enough reason for explaining why risk assets are unloved.

The upward move in equities we’ve seen over the past week may prove to be a temporary recovery, a dead cat bounce or a bear market rally. Call it whatever you like, but as long as infection rates continue to grow at the current pace, this more or less guarantees weak economic performance going forward and a collapse in earnings.

With global infections likely to reach one million later today and deaths surpassing 50,000, investors are focusing on capital preservation and are looking to return to cash. That suggests another leg lower in equity prices over the next couple of weeks, until investors have a better understanding on how the current crisis will end.

Of course, no one knows with certainty how bad this pandemic will impact global economies and corporate earnings. But it is obvious that corporate buybacks, a major component of the past decade’s bull market, will be missing in 2020 and probably in 2021 depending on how long the crisis persists. These buybacks have been by far the greatest course of demand for stocks since the 2008 crisis.

While some investors may want to take this opportunity of extreme pessimism to begin accumulating stocks, they may soon realize that we haven’t reached the capitulation stage yet. That is when investors surrender or give up trying to recapture lost gains as a result of falling stock prices and is generally considered to be a sign of a bottom in prices.

Today’s US weekly jobless claims release for the week ending March 28 is going to be of more importance than Friday’s non-farm payrolls report. That’s because the NFP will only include data through March 14, so it doesn’t reflect the impact of the last two weeks when millions of Americans filed for unemployment benefits.

Jobless claims may have risen 3 – 5 million in the past week, and we could even see a higher revision of the last week’s 3.28 million print. That suggests April’s NFP may show job losses in 8 digits, which could turn out to be the darkest day ever in the US job market.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

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ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12

After 103 corona interest rate cuts in Q1, what now?


    Since the outbreak of the novel coronavirus, central banks from the South Pacific to the North Atlantic have slashed interest rates 103 times, injected trillions of dollars of liquidity into the financial system, launched a flurry of loan programs and bought bonds in a firefighting exercise to prevent a global recession from becoming a global depression.

     Judging from the recent easing of strains in financial markets, this massive bout of monetary stimulus, along with a trillions of dollars of spending by governments worldwide, will help the global economy overcome the shock from the shutdown of large parts of the global economy to limit the spread of Covid-19.

     But in the process, interest rates at all the world’s major central banks, are now effectively at the zero-lower bound, raising uncomfortable questions about the future of monetary policy.
     Even if policy makers are successful in engineering a recovery, both in asset markets and the underlying economy, is there any ammunition left to tackle the next downturn or a sudden crises?
    And if asset markets fail to recover, what then? More stimulus? 

     With interest at rock-bottom, the answer by central banks in advanced economies is large-scale purchases of both government and private securities, a tactic now used by all Group of Seven (G7) central banks: the U.S., Japan, the euro area, the U.K and Canada. 
      But it’s not just central banks in developed markets that are using the monetary tool of asset purchases, or quantitative easing. Now it’s being used worldwide.
       Chile’s central bank is buying bank bonds while the central banks of Israel, Poland, Colombia, the Philippines, South Africa, Jamaica and Iceland are buying government debt in the secondary market.
      The problem is this tool has been employed to little avail by the Bank of Japan for almost two decades, by the European Central Bank for five years and by the Federal Reserve in various phases  since the global financial crises in 2008.
       While asset prices prices have risen and debt has accumulated, economic growth has trended downward and the wealth gap has widened.

     This year started out on a promising note, with uncertainty from the U.S.-China trade conflict easing, confirming the general view the global slowdown was bottoming out.
     Several important emerging markets, such as Turkey, South Africa and Malaysia, still lowered rates in January due to lingering uncertainty and domestic weakness.
     Meanwhile, under the radar of most investors, the coronavirus claimed its first Chinese victim on Jan. 11 before authorities on Jan. 23 shut down the industrial of Wuhan, the epicenter of the outbreak, to prevent the spread of the virus.
     Despite a 10 percent drop in Shanghai stocks in late January, U.S. and global stock markets continued their upward march until Feb. 19, despite the growing storm on the horizon.
     Although central banks normally trail changes in financial markets, this time they were ahead.
     Illustrating just how interwoven the global economy has become, Sri Lanka’s central bank was the first central bank to refer to the coronavirus when it lowered its rate on Jan. 29, days before China’s central bank on Feb. 3 began to pump in liquidity to the banking system at lower interest rates.
      Thailand’s central bank then followed suit by cutting its rate on Feb. 5 and since then the rate cuts have come at a fast and furious pace, spanning the globe from Mongolia to Mauritius.


      Since late January, when the outbreak of the coronavirus first began to affect financial markets, policy rates have been cut an astounding 103 times, with many central banks cutting rates multiple times in response to the growing threat to economies worldwide.
     Illustrating the speed with which the threat to economic growth has mushroomed, 53 of those rate cuts have been taken at multiple extraordinary policy meetings, such as those by the U.S. Federal Reserve, the Bank of Canada, the Bank of England and the Reserve Bank of Australia.
     From the beginning of 2020, 67 different central banks have cut policy rates 111 times by a cumulative 86.28 percentage points, or a net reduction of 81.88 points when taking into account the four rate hikes seen this year from Kazakhstan, the Czech Republic, the Kyrgyz Republic and Denmark.
     Including other measures taken to ease monetary policy in addition to rate cuts – such as cutting lowering reserve requirements, countercyclical capital buffers, injecting large-scale liquidity, launching new low-cost loan programs or restarting asset purchases – there have been at least 189 steps to ease monetary policy.
     The global monetary policy rate (GMPR), the average interest rate by 97 central banks worldwide, has plunged 84 basis points this year to 4.85 percent from 5.69 percent at the end of 2019, 6.42 percent at end-2018 and 5.99 percent at end-2017.

      2020 MONTH-BY-MONTH
       The following 62 central banks cut rates 83 times in March: Australia (twice), Malaysia, USA (twice), Saudi Arabia (twice), Bahrain (twice), UAE (twice), Qatar (twice), Kuwait (twice), Jordan (twice), Hong Kong (twice), Macau (twice), Moldova (twice), Canada (three times), Paraguay (twice), Argentina, Mauritius, UK (twice), Iceland (twice), Serbia, Mongolia, Ukraine, Norway (twice), New Zealand, South Korea, Sri Lanka, Czech Republic (twice), Egypt, Chile (twice), Costa Rica, Armenia, Turkey, Pakistan (twice), Vietnam, Tunisia, Morocco, Poland, Fiji, Trinidad & Tobago, Ghana, Sierra Leone, Brazil, Dominican Republic, Taiwan, Philippines, Indonesia, South Africa, Honduras, Thailand, Namibia, Romania, Mexico, Eswatini, Seychelles, Lesotho (twice, Kenya, Bangladesh, Democratic Republic of Congo, Albania, Zimbabwe, India, Colombia and Barbados.
      Singapore is not included in this list as it uses the exchange rate as a monetary policy tool. However, it has also eased its policy by letting its dollar depreciate.
      Kazakhstan and Denmark stand out as the only central banks to have raised rates in March.
      14 central banks cut rates 15 times in February: Iceland, Thailand, Brazil, Honduras, Philippines, Russia, Belarus, Mexico, Argentina (twice), Namibia, Turkey, China, Indonesia and The Gambia.
      Two central banks, the Czech National Bank and the National Bank of the Kyrgyz Republic, raised rates.


      11 central banks cut rates 13 times in January: Argentina (3 times), North Macedonia, Turkey, South Africa, Malaysia, Kenya, Lesotho, Sri Lanka, Ukraine, Costa Rica and Azerbaijan, with rates lowered by a cumulative 1,125 basis points while Tajikistan raised its rate.

      2020 BY MARKETS

      Central banks worldwide have taken 198 policy decisions so far this year, with policy rates cut 111 times and only raised five times.


      Central banks in developed markets have decided on monetary policy 29 times this year, with seven banks cutting their rates 14 times: Australia, the United States (twice), Hong Kong (twice), Canada (three times), the UK (twice), Norway (twice) and New Zealand.
      Denmark raised its rate but this is the context of a policy framework in which the Nationalbank pegs the krone to the euro. The rate hike should support the krone which has come under downward pressure as capital flows to more liquid currencies.


     Emerging market central banks have decided on monetary policy 58 times, with 21 banks cutting rates 34 times: Turkey (three times), South Africa (twice), Malaysia (twice), Thailand, Brazil (twice), Philippines (twice), Russia, Mexico (twice), China, Indonesia (twice), UAE (twice), Qatar (twice), South Korea, Chile (twice), Czech Republic (twice), Egypt, Pakistan (twice), Poland, Taiwan, India and Colombia cutting policy rates.
      After raising its rate in February, the Czech Republic reversed course in March and cut its rate.


     Central banks in frontier markets have decided on monetary policy 41 times, with 15 banks cutting rates 26 times: Sri Lanka (twice), Kenya (twice), Ukraine (twice), Bahrain (twice), Kuwait (twice), Jordan (twice), Mauritius, Serbia, Morocco, Tunisia, Vietnam, Ghana, Romania and Bangladesh. Argentina has cut six times.
     Kazakhstan has raised its rate once while Nigeria raised its reserve requirement.


     Central banks in other markets have decided on monetary policy 69 times, with 24 banks cutting rates 33 times: North Macedonia, Kenya, Lesotho (twice), Azerbaijan, Honduras (twice), Iceland (three times), Belarus, Costa Rica (twice), Namibia, The Gambia, Saudi Arabia (twice), Macao (twice), Moldova (twice), Mongolia, Trinidad & Tobago, Dominican Republic, Sierra Leone, Paraguay (twice), Fiji, Eswatini, Seychelles, Democratic Republic of Congo, Albania and Zimbabwe.
     Kyrgyzstan and Tajikistan have raised their rates while Curacao has raised its reserve requirement to curb liquidity.

     Prior to the outbreak of the coronavirus, 2019 was characterized by the most synchronized monetary easing since the global financial crises in 2008-2009.

     Sixty-seven different central banks cut their key interest rates 159 times in response to the lowest growth of in a decade due to the damaging effect of trade conflicts on global manufacturing, confidence, and the lagged effect of monetary tightening in 2018.



New quarter yet to provide sunshine of hope for global markets

By Jameel Ahmad, Global Head of Currency Strategy and Market Research at FXTM, ForexTime

The opening day of trading for the new quarter is yet to indicate a positive change of weather for global markets, after world stocks concluded the first quarter of 2020 suffering the steepest declines seen since the 2008 global financial crisis. Even with a 20% or more discount available and hanging over a number of different assets taking these items to the checkout doesn’t appear to be the best bargain opportunity and investors are likely to wait for more discounts to become available. Even President Donald Trump has changed his tune on the coronavirus after providing his bleakest outlook yet on the threat facing the United States, and the comments provided from UN Secretary General Antonio Guterres warning that the disease outbreak represents the biggest challenge since World War Two illustrates clearly that the world is still to see more darkness before light is available at the end of the tunnel.

This negative vibe and undertone that surrounds investors is encouraging another day of losses for currencies belonging to emerging markets. Leading the declines at time of writing in Asia is the Malaysian Ringgit, Indonesian Rupiah and Indian Rupee with all lower close to 1% against the USD. The South African Rand is on the brink of another all-time low and it appears to be just a matter of time with USDZAR peeping back above 18 and another run lower for Oil prices holds the key for how much more carnage the Russian Ruble will take after it has already lost 26% year-to-date.

One might like to optimistically hope that after Oil prices collapsed by more than 60% to post the worst quarter on record that matters can only look up from here for the commodity, but this is still unlikely to be the case. Oil prices stare at the threat to falling below $20 for a prolonged period once economic data releases highlight the full impact the lockdown controls and restrictions on business environments are having on the world economy over the next one to two months – representing an unfortunate likelihood for Oil producers that valuations can still deteriorate to levels not seen since the 1990’s.

The test of time and the ultimate fortune for how a number of global assets will perform over the second quarter does hinge on the outlook for the USD. A catastrophic number of fatalities to the coronavirus that could see up to 200,000 pass away in the United States might question whether the 2020 run for the Dollar can continue, but we also should not discount the attraction to the Greenback from world buyers as a funding mechanism.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

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ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12

Europe’s Coronavirus Contraction – Part I: From Missed Opportunities to Virus Escalation

By Dan Steinbock

– Today, the number of confirmed cases in Europe is more than four times as high as in China. It wasn’t an inevitable scenario. It is the result of complacency, inadequate preparedness and missed opportunities.   

Today, the epicenter of the novel coronavirus outbreaks is in the United States and Europe. In effect, more than half of all cases worldwide are in Europe.

Furthermore, Europe has over four times more cases than China.

How did this happen? How could it happen?

The first missed opportunity

At the end of January, the World Health Organization (WHO) declared the ongoing virus outbreak a “public health emergency of international concern.” The WHO was concerned about the possible effects of the virus, if it would spread to countries with weaker healthcare systems.

On February 4, WHO chief Dr. Tedros dropped a news bomb by stating publicly that it was the countries outside China that had been slow in sharing information about cases. After a month of international crisis and a global alert, a stunning three of five member countries had failed to provide adequate case information to WHO. Those reports were vital to assess the international scope of the outbreak and to contain it.

Instead of mobilization, major European economies followed the virus crisis as if it was a “Chinese problem.”

The complacency was compounded by the concurrent media coverage, which was often sensational and misguided contributing to the “infodemic.” Still worse, instead of preparing against the virus, public debate began an odd battle against the WHO, its chief and some of his right-hand executives thereby compounding the inadequate preparedness (see my “The Strange War with WHO’s Battle Against COVID-19”, The World Financial Review, Feb 14, 2020).

As the timeline suggests, it was this missed first month that led to the confirmed cases soaring outside China after February 4 (Figure).

Figure      The Human Costs of Europe’s Coronavirus Complacency*

* Confirmed COVID-19 cases worldwide through March 29 2020

Source: WHO, Difference Group.

Yet, the writing was on the wall. In China, a “mystery pneumonia” of unknown etiology was first identified in Wuhan by the end of December. At the onset of January, the WHO had been informed about the new virus. And by January 10, scientists in China sequenced the virus’s genome and made it available. With SARS this work had taken months; now only a month.

After mid-January, Beijing initiated the draconian measures to contain the virus and the story was all over in international headlines.

In the United States, the first coronavirus case was identified on January 20. In Europe, the first cases were detected just days later, on January 24, in Bordeaux and Paris, along with a cluster of infections that was discovered in Haute-Savoie. In Germany, the first case was confirmed on January 27; in Italy, four days later; in Spain and the UK, on January 31.

And yet, thereafter, weeks of mobilization were missed as major European countries hoped for the best but didn’t prepare for the worst. That odd state of waiting prevailed until a dramatic escalation ensued in Italy on February 21, when a cluster of cases was confirmed cases in Lombardy, followed by another acceleration in Spain just three days later.

That’s how Inadequate preparedness ensured the virus a free ride, which resulted in an explosion of local transmissions in late February. By then, Italy had few alternatives but to adopt the Chinese strategy of shutting down cities and banning social activities, strictly isolating infected people. Only weeks before, many European leaders had criticized such measures as “autocratic” and “counter-productive.” Now they rushed to adopt them.

At the turn of April, confirmed cases worldwide exceeded 650,000, while those in Italy were approaching 100,000; in Spain, 75,000; Germany, 55,000; France, 40,000; and the UK 20,000. Combined, these five European countries alone had more than twice as many cases as the U.S.

Here’s the inconvenient truth about the first missed opportunity: When Dr Tedros delivered his news bomb on February 4, there were only 25 confirmed cases in Europe. When serious mobilization began around mid-March, the number of those cases had exploded more than 1000-fold to 28,000 in the five major European economies, while the total had soared to about 35,000. Today, at the start of April, those cases have increased 10-fold in major European economies and the region as a whole – in the former case, to 270,000 and in the latter, to some 360,000.

Worse, another missed opportunity may loom ahead.

Toward a second missed opportunity?

As mobilization began belatedly, some European leaders tried to frame inadequate preparedness as a foresighted strategy. In the UK, Prime Minister Boris Johnson stated that “we can turn the tide within the next 12 weeks.” In mid-March, he added that schools would stay open. He advised people with symptoms to stay at home for a week and advised seniors over the age of 70 to avoid certain activities.

Relying on the advice of some epidemiologists, Johnson began to advocate “herd immunity” as the new strategy. Basically, the idea is that, within a certain group of people, the circulation of diseases can be stopped after enough are infected and gain immunity. If, say, two thirds of people in a group have immunity, the number of people a sick person can infect will plunge below one. And that will bring the disease under control.

The idea is presented as a “realistic” solution. Since tight control and isolation strategies may not work anymore, the virus is already spread all around the world.

It is not a new idea, however. It was first deployed in the 1920s and recognized as a recurring phenomenon in the 1930s when, after a significant number of children had become immune to measles, new infections temporarily decreased. Subsequently, mass vaccination to induce herd immunity became common.

Unfortunately, in the coronavirus crisis, the idea of the herd immunity may imply the kind of medication that has potential to worsen the crisis. After all, there is no vaccine yet and it may take a year or longer to develop. So, if resignation is disguised as a strategy, it is likely to condemn major risk groups – the elderly, those with chronic pulmonary conditions, hypertension, diabetes and asthma patients, and those without adequate access to affordable health care – into a premature death.

Worse, whatever happens in Europe will not stay in region. In a global, inter-connected economy, all countries are linked. And with pandemics, the weakest links determine the future of the whole, through flows of world trade, investment and particularly migration and tourism.

If major European countries opt for the herd immunity scenario, it would be naïve to expect the virus to disappear by early summer (that’s the current expectation). It could easily last into the fall and well into 2021. As a result, human costs would soar, while economic devastation would spread deeper and broader.

In that scenario, herd immunity would signal a second missed opportunity.

About the Author:

Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see  For recent coronavirus briefings, see

This is the first part of the commentary that was released by The European Financial Review on March 31, 2020


Chile cuts rate 2nd time, economy to contract ‘severely”


Chile’s central bank cut its policy rate for the second time this year to what it said was a “technical minimum” of 0.50 percent after it became clear “the economy entered a process of severe contraction in the second half of March that will extend throughout the second quarter.”

The Central Bank of Chile cut its rate by 50 basis points to 0.50 percent, it’s second rate cut this month after a 75-basis-point cut on March 16. This means the rate has been cut by a total of 125 points this year, and by 250 points since June 2019 when it began a monetary policy easing cycle.

“The external scenario has deteriorated significantly after the rapid global expansion of Covid-19,” the central bank said, adding it had extended its program to purchase bank bonds by US$4 billion, raising the outstanding balance of the program to $5.5 billion.

The Central Bank of Chile issue the following statement:

“In its monetary policy meeting, the Board of the Central Bank of Chile decided to lower the monetary policy interest rate by 50 basis points, to 0.50%. The decision was adopted by the unanimous vote of its members.

The external scenario has deteriorated significantly after the rapid global expansion of Covid-19. The sanitary control measures implemented around the world have triggered important disruptions in supply and demand, whose effects are being felt already. The uncertainty about the magnitude of the economic impact of the pandemic has favored a substantial increase in the markets’ risk aversion. This has reflected on increased demand for safe and short-term assets, escalating volatility and risk indicators, widespread stock market falls, capital outflows from emerging economies, across-the-board depreciation of currencies against the US dollar, and a sharp decline in the prices of commodities, copper included. The monetary and fiscal authorities have launched considerable stimulus plans to address the worsening circumstances, which has eased the markets’ reaction in the most recent past.
While in January and February activity indicators showed a faster than expected recovery than had been forecast in the December Monetary Policy Report, the sudden change in macroeconomic conditions generated by the Covid-19, including the spread of the pandemic into Chile, leads to assume that the economy entered a process of severe contraction in the second half of March that will extend throughout the second quarter. The markets have been steadily trimming their growth projections for this year and the latest estimates point to a y-o-y fall. The government has announced an important stimulus package that couples with the cut to the MPR and the measures adopted by the Bank to facilitate personal and corporate access to credit.

The local financial market has been aligned with these developments. Major corrections have been observed in the IPSA stock index and the exchange rate, while liquidity and fixed-income interest rates have also fluctuated reflecting the search for safe assets. To facilitate the normal flow of credit and the proper functioning of the markets, the Board, among other measures, extended access to liquidity programs already in place, initiated the purchase of bank bonds from SOMA system participants; established the Conditional Financing Facility for Increased Loans (FCIC) expanding eligible collateral; activated the Liquidity Credit Line (LCL) and relaxed liquidity requirements for maturity mismatches. As of today, all these measures are in operation.
In February, annual inflation rose to almost 4% while core inflation remained slightly above 2.5%. This steadily changing scenario significantly reduces medium-term inflationary pressures, given the widening of the activity gap that has resulted. Additionally, the important drop in the oil price counteracts the cost pressures derived from the peso depreciation. Incoming figures of recent days for market inflation expectations have lowered expected levels one year ahead, while two years ahead they are still at 3%.
The Board’s decision to bring the MPR to its technical minimum of 0.5% is made in a scenario in which medium-term inflationary pressures have dissipated substantially and that the efforts to overcome the sanitary crisis will have major effects on activity and employment, among other variables. Accordingly, the Board estimates that for inflation to converge to the 3% target, monetary policy needs to remain highly expansionary for an extended period.
Together with the above, the Board decided to extend the program in place for the purchase of banking bonds by US$ 4 billion and eliminate the maturity constraints of the eligible instruments. Thus, the purchase balance outstanding of that program has changed to an amount of up to US$5.5 billion.
The Board will continue to implement every measure necessary to promote the proper functioning of the financial markets and compliance with the Bank’s inflationary and financial stability objectives.
The March Monetary Policy Report containing the projections and analyses that sustain the Board’s decision will be published tomorrow, Wednesday 1 April 2020 at 8:30 AM.
The minutes from this monetary policy meeting will be published at 8:30 AM of Thursday 16 April 2020. The next monetary policy meeting will take place on Tuesday 5 and Wednesday 6 May 2020 and the statement thereof will be released on Wednesday 5 at 6:00 PM.”