Can QE defeat the economic impact of the Corona Virus?

The weekend just passed has seen more than a few bits of evidence of the spread of the Corona Virus especially in Japan, South Korea, Italy and Iran. It has been a curious phase in Japan where on that quarantined cruise ship they have seemed determined to follow as closely as they can to the plot of the film Alien. Even China has been forced to admit things are not going well. This is President Xi Jinping in Xinhua News.

The epidemic situation remains grim and complex and it is now a most crucial moment to curb the spread, he noted.

Yet later in the same speech we are told this.

Stressing orderly resumption of work and production, Xi made specific requirements to that end.

Back on February 3rd we looked at the potential impact on the economy of China but today we can look wider. Let us open by seeing the consequences of some of the rhetoric being deployed.

Bond Markets

UST 30-Year yield falls to an all-time low 1.83 ( @fullcarry )

So we see an all-time low for the long bond in the worlds largest sovereign bond market. Rallies in bond markets are a knee-jerk response to signs of financial turmoil except it is supposed to be for the certainty of yield or if you prefer  interest. The catch is that there is not much to be found even in the US now and if we look wider afield we see that in one of the extreme cases of these times there is none to be found at all. This is because even the thirty-year yield in Germany is now -0.04% so in fact it is being paid to borrow all along its maturity spectrum.

It was only on Friday that I pointed out some were suggesting that the “bond vigilantes” might return to the UK whereas the UK Gilt market has surged also today with the 50 year Gilt at a mere 0.76%.

These are extraordinary numbers which come on the back of all the interest-rate cuts and all the central bank QE bond buying. Of course the latter is ongoing in the Euro area and in Japan. So let us look at them in particular.

The ECB has already hinted in the past that a reduction in its deposit rate to -0.6% could be deployed but frankly their situation is highlighted by talking about a 0.1% move. After all if full percentage points have not helped then how will 0.1%? Even they are tilling the ground on this front as they join the central banking rush to claim lower interest-rates are nothing to do with them at all.

Interest rates in advanced economies have been on a broad downward path for more than three decades
and remain close to historical lows.[5]
As has been highlighted in many studies, the drivers of this long-term pattern largely boil down to
demographics, productivity and the elevated net demand for safe assets. ( ECB Chief Economist Lane on Friday )

Next comes the issue that an extension of QE is limited by that fact that there are not so many bonds to buy on Germany and the Netherlands. But the reality is that under pressure this “rules based organisation” has a habit of changing the rules.

Switching to Japan we see that Governor Kuroda has been speaking too.

RIYADH (Reuters) – The Bank of Japan will be fully prepared to take necessary action to mitigate the impact of the coronavirus on the world’s third-largest economy, its Governor Haruhiko Kuroda said.

Okay what?

He also repeated the view that, while the central bank stands ready to ease monetary policy further “without hesitation”, it saw no immediate need to act.

That reminds me of the time he denied any plans to move to negative interest-rates and a mere eight days later he did. The next bit seems to be from a place far,far,away.

Kuroda said there was no major change to the BOJ’s projection that Japan’s economy would keep recovering moderately thanks to an expected rebound in global growth around mid-year.

Perhaps he was hoping that people would forget that GDP fell by 1.6% in the last quarter of 2018 meaning that the economy was 0.4% smaller than a year before.Or that Japanese plans for this year involved an Olympics in Tokyo that is now in doubt, after all the Tokyo Marathon has been dramatically downsized. I write that sadly as there are a couple of people who train at Battersea Park running track with hopes of competing in the Olympics.

But the grand master of expectations here was this from the G 20 conference over the weekend.

“I’m not going to comment on monetary policy, but obviously central bankers will look at various different options as this has an impact on the economy,” Mnuchin said.


There have been various false dawns for the price of gold and of course enough conspiracy theories about this for anyone. But gold bugs will be singing along with Spandau Ballet as they note a price of US $1688 is up over 23% on a year ago.

Always believe in your soul
You’ve got the power to know
You’re indestructible, always believe in, ‘cos you are ( Spandau Ballet )

Equity Markets

This have faced something of a conundrum as fears of a slowing world economy have been been by the hopium of even more central bank easing. Last week the Dax 30 of Germany hit an all-time high and today it is down 3.6% at 13,070 as I type this. So for all the media panic today it remains close to its highest ever.


There are two main trends here I want to mark. The first is that we seem to be again in a period of what might be called King Dollar. Also there is this.

SNB propping up 1.0600 in $EURCHF ( @RANSquawk )

Trying that at 1.20 imploded rather spectacularly in January 2015. For newer readers the Swiss Franc (CHF) has been strong as the reversal of the pre credit crunch carry trade has been added to by the perceived strength of Switzerland. This was exacerbated as its neighbour the Euro area kept cutting interest-rates and went negative. So the Swiss National Bank are presently intervening against a safe haven flow towards the Swissy.

I have suggested for a while now I could see the Swiss National Bank cutting interest-rates to -1% and expect not to be “so lonely” as The Police put it. Also I would remind you that 20% of the intervention will be reinvested in the US equity market.


Who knew that interest-rate cuts and QE could be effective cures for the Corona Virus? Especially as they have not worked for much else. Although there are also whispers that it can cure climate change too. This highlights the moral and intellectual bankruptcy at play as central bankers try to offer more central planning to fix the problems of past central planning. The Corona Virus is of course not their fault but anything unexpected was always going to be a problem for a group determined not to allow a recession and thus any reform under creative destruction.

Meanwhile the rest of us wait to see the full economic impact as we mull the flickers of knowledge we get. For example Jaguar Land Rover saying it only has 2 weeks supply of some parts or reports that for some US pharmaceuticals 80% of the basic ingredients come from China. So the latter could see large demand they cannot supply and higher prices just as we see lower demand and inflation elsewhere. More conventionally there is this for France which must send a chill down the spine of Italy to its boot.

The drop off in tourist numbers is an “important impact” on France’s economy, Bruno Le Maire, the country’s finance minister, said…….France is one of the most visited countries in the world, and tourism accounts for nearly 8% of its GDP.






18 thoughts on “Can QE defeat the economic impact of the Corona Virus?

  1. Interest rates and QE aren’t a cure for coronavirus but they will have to be used to ease the pain imo.

    With South Korea now spreading fast and more than 200 cases in Italy the travel industry is getting hurt.

    There will be more and more supply disruptions one things affects the next. People will tend to stay at home that means less money in restaurants, cinemas , shopping arcades, and indeed more people out of work.

    Furthermore there wont be a bonce back quickly.

    With world debt at high levels QE and lower interest rates will have to be used to ease the pain. They may not be a full cure but they will help. Its either that or some companies will go bust.

    I recall sating last week the coronavirus could be the meltdown that brings down inflated assets such as house prices, its get your tin hat out and be prepared.

  2. Hello Shaun,

    re: Can QE defeat the economic impact of the Corona Virus?

    for the life of I cannot think why it would , after all it’s been a dismal failure to revive the economy as is ….

    I mean , more asset inflation ? ( or in this case, a brake on dis-inflation ….. )


  3. Pictures of fully suited medical staff filling the TV screens every night is going to affect behaviour and now its much closer to us (Italy) that will impact behaviour in the short term. I.E Im not going to book Italy currently and only takes one case in any other European country to be mentioned to see them on the hit list hence Easyjet down nearly 14% as i type this. Im not sure WHO know what they are dealing with fully yet but suppression of contact is the only weapon they have currently and thus its good to see Italy taking draconian action even if short term they are hurt by it. This is now a case of plan for the worst hope for the best to protect the long term.

    • SWAT teams seen practicing unconventional methods to capture uncooperative patients:

      All these tactics including dragging people out of their homes does cause alarm, but lets fact it the UK was only prepared to bring UK citizens back to the UK if they signed a contract willing to go in quarantine.

      The UK can also forcible remove people from their homes if they are aware of a public health threat.

      There is one thing certain from my standpoint and that is world trade and global GDP will indeed fall and its come at a bad time with the global economy already fragile.

      I was I had a business distributing face masks at the moment it would be a boom time.

  4. The problem is that there is too much populism.
    A pandemic to fracture opposition to elitist globalism, and a simultaneous economic crisis, both of which can only be solved by “us all working together,” should see the elitist UN Agenda 2030 back on course.

    • Hi therrawbuzzin

      I first read your reply as being there is too much population and the rise does run the risk of a Malthusian event. However returning to the populism issue I think this may increase it. So if it was to neuter it then it may well backfire.

      • I do not believe that the World is over-populated.
        We already set aside some excellent farmlands and produce DOUBLE the population’s food needs.
        Famine is a political issue.

        • Now, US Secretary of State Mike Pompeo has said
          “All nations, including Iran, should tell the truth about the coronavirus and co-operate with international aid organisations.”

  5. I am not a conspiracy theorist, but it is jolly convenient for Chinese companies to blame the virus for a huge drop in car sales (first sign of trouble ahead) and cash flow problems at most of their companies – how much of it would have happened anyway? If QE is being pumped in, it is done electronically, so what is the cash flow problem?

    Shaun is of course right that a policy of deep rate cuts that have merely stalled economic activity is not going to change anything with small shifts. This bizarre idea that recessions can be avoided means that these people were not paying attention in economics classes – if you want to encourage borrowing (stated aim of QE) , then one day that cuts the ability to consume and the downturn comes. Mind you, ‘thick as mince’ David Davies is saying we have the lowest rates ever (true) and should be happy about it (erm, they were an emergency measure).

    • Hi dave

      One of the theories of my late father was that many takeovers and mergers were driven by the fact that making much of the company accounts would be difficult for a couple of years or so. The outbreak has similarities as on quite a lot can be blamed on it.

      As to interest-rates I am expecting more cuts and if we get more stock market falls like today then maybe we will not have to wait for long.

  6. The central banks stand ready to devalue your savings to zero to prevent asset prices from normalising and thus repeat the policies that have failed to generate a recovery for eleven years…why would they stop now?

    • Yes, QE will impoverish us all, so there will be no demand for those Chinese goods produced in factories belching CO2. Genius!

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