March 3, 2020 / 5:29 AM / a month ago

ANALYST VIEW 2-Markets may need more than monetary talk from G7

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SINGAPORE/TOKYO, March 3 (Reuters) - G7 finance ministers and central bank governors will hold a conference call on Tuesday to discuss measures to deal with the coronavirus outbreak and its economic impact.

The call, which French and Italian sources said begins at 1200 GMT, comes as futures markets bet that the U.S. Federal Reserve will lead a round of global monetary easing.

As it stands, the draft statement includes a pledge to work together but no specific fiscal or monetary measures, a G7 official told Reuters on condition of anonymity.

Here are analyst views on what could be announced and the likely upshot of the G7 call for markets:

DAISUKE UNO, CHIEF STRATEGIST, SUMITOMO MITSUI BANK CORP, TOKYO

“You can’t give what you haven’t got. That is more or less true of every (G7) country. The euro zone and Japan already have negative interest rates, effective limit of monetary easing even if they want to. As for fiscal stimulus, it may have some effect after the epidemic is over but it cannot make people go out to spend.”

“These stimulus will help the economy only indirectly, though they could at least technically support share prices.”

STEPHEN INNES, CHIEF MARKET STRATEGIST, AXICORP

“The G7 statement as of now does not include any specific language calling for new fiscal spending or coordinated interest rate cuts by central banks, Reuters reports.

“This is hurting dollar/yen. But even if the news is accurate, the Fed will be under tremendous pressure to cut...this is a test of what matters more – the Fed or global easing. The Fed really only has the scope to cut, so I wouldn’t be too quick in selling risk on the headline. I vote the Fed!”

JOHANNA CHUA, EM ASIA ECONOMICS AND STRATEGY, CITI, HONG KONG

Equities and other risk assets were in for a quick relief (on Monday) on back of expectations of coordinated easing by the G7 authorities.

The “burden of expectations is arguably higher from the conference call between G7 finance ministers and central bank heads tonight.

A pull up in UST yields from lows seen in Asia session yesterday will likely diffuse the strong receiving interest for most low yielding Asian curves. However, situation remains fluid and a lot depends on how successful the G7 conference call is in keeping up with the expectations of coordinated easing. ALVIN LIEW, SENIOR ECONOMIST, UOB, SINGAPORE

“They need to announce something, just a motherhood statement would definitely disappoint the market.

“Targeted measures or directed lending at the sectors that are affected are something they could do.

“The policy rate aspect, I’m not quite sure that can deal effectively with the problems that are caused by the virus....at the same time, for them to all agree on something coordinated, I’m not quite sure there is anything (else) so straightforward.”

JOE CAPURSO, FX ANALYST, COMMONWEALTH BANK OF AUSTRALIA, SYDNEY

“We don’t have high expectations that the G7 are going to announce a coordinated policy easing. We can see some central banks being reluctant to pull the trigger on that.

“(Some) may introduce liquidity measures. But the point we’ve been making recently is that a lower price of money does not fix the fear that people have of catching the virus.

“That is what’s causing the economic disruption and lower interest rates aren’t going to fix the fear.”

SELENA LING, HEAD OF RESEARCH AND STRATEGY, OCBC, SINGAPORE

“They may commit to policy accommodation, to combat the downside growth risks, and probably leave it open ended as to whether it is going to be monetary alone or monetary and fiscal.

“If they gave a timeframe as to when they are going to meet again, then maybe that is something concrete...(but) my sense is that global jawboning can only work for so long.

“G7 communiques have certainly lost most of their weight in recent years, they just have a hodgepodge of things they want to do and things they are hoping to do.

“I think the bigger theme is that because the correction in the equity market and the rally in the bond market have gone so far, they are kind of pricing in a recession story...I don’t think (talk) is enough to reclaim all the lost ground.”

MASAYUKI KICHIKAWA, CHIEF MACRO STRATEGIST AT SUMITOMO MITSUI ASSET MANAGEMENT CO, TOKYO

“Investors are already pricing global monetary easing into the markets, so the focus could fall more on fiscal stimulus.

“It turns out that the biggest fiscal boost is likely to come from China. I am sceptical whether other countries can come up with fiscal stimulus that is large enough to impact the global economy. Expectations for the G7 are not that high.

“The tool kit is different for each central bank. The U.S. Federal Reserve is likely to cut rates. The European Central Bank may also cut rates and opt for some quantitative measures. The Bank of Japan will focus on buying exchange-traded funds.”

ROB CARNELL, CHIEF ECONOMIST ASIA-PACIFIC, ING, SINGAPORE

“I’m not sure we’re really expecting a lot from them.

“I’m not sure it’s really going to deliver a big dollop of fiscal stimulus, which is probably what the market would like to see but which I think it realistically doesn’t anticipate seeing.

“I mean, can you really imagine any of the countries in Europe coming up with a meaningful contribution to spending that’s going to make a difference to what the virus is actually doing?” (Reporting by Tom Westbrook in Singapore and Stanley White and Hideyuki Sano in Tokyo; Editing by Sam Holmes and Kim Coghill)

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