NEW YORK—The Bank of England (BoE) bought assets, and the European Central Bank (ECB) and People’s Bank of China both cut key interest rates, in broad efforts to strengthen their respective economies, then successively the global economy at large.
All three actions happened within an hour of each other on Thursday, although they were not coordinated, the banks said.
The ECB lowered interest rates to a record low 0.75 percent and deposit rates to nil, while Chinese central bank authorities cut China’s benchmark rates by 0.31 percent to 6 percent on concerns that its economy was shrinking quickly. The BoE announced its plan to inject liquidity into the market by purchasing assets worth 50 billion pounds (US$77.65 billion).
The BoE was bearish on its outlook. “In spite of the progress made at the latest European Council, concerns remain about the indebtedness and competitiveness of several euro-area economies, and that is weighing on confidence here [in the U.K.],” the BoE said in a released statement.
Many experts remain unconvinced that BoE’s measures will be effective, considering that the central bank had already injected 325 billion pounds into the money supply, and the U.K.’s economy remains sluggish today.
The last coordinated action to stimulate the global economy came after the global financial crisis in 2008. During a news conference Thursday, ECB president, Mario Draghi, said that economic conditions worsened in the eurozone during the last three months, but added “definitely not” when asked whether current conditions were comparable to those during 2008.
The International Monetary Fund earlier in the week urged the Federal Reserve to also act to stimulate the U.S. economy in another round of quantitative easing. The Fed remains mum, however, Friday’s unemployment report may force its hand if it comes far below expectations.
In Europe, stock markets largely declined, with the Frankfurt DAX off 0.45 percent and Paris CAC down 1.2 percent. London’s FTSE 100 was the lone gainer—albeit tiny—with an eight-point increase, or 0.1 percent.
Breaking Up the Euro?
An idea to properly break up the eurozone won the Wolfson Economic Prize on Thursday, specifically a paper floated by economist Roger Bootle of Capital Economics.
Bootle’s plan, titled Leaving the Euro, a Practical Guide, outlines how a country would leave the eurozone while limiting disruption to wages, currency valuation, and inflation.
The plan enables a nation to issue new currency, one for one against the euro, while quickly announcing a strict program to manage inflation, ensure fiscal discipline, and issue inflation-linked government bonds to balance the budget.
That plan may indeed come to fruition if the current environment subsists for long. The euro currency dropped to its lowest level in a month against the U.S. dollar on Thursday after ECB’s rate decision. It marked a second drop in as many days for the 17-nation common currency.
US Stocks Slip
U.S. stocks languished Thursday as well, with the Dow Jones Industrial Average falling 47 points, or 0.4 percent. The S&P 500 Index shed 6 points, or 0.5 percent. The Nasdaq Composite Index ended the trading day flat.
ADP data indicated on Thursday that the U.S. private sector added 176,000 jobs last month, an increase of 40,000 over May’s gains. New claims for unemployment benefits also decreased last week, to 374,000 new claims. The information failed to elicit any optimism as traders sold off shares while anxiously awaiting Friday’s news.
Friday’s official June employment figures will arrive at 8 a.m., but any good news would be a double-edged sword as the Fed will likely hold off on another round of economic stimulus should the economy show solid job growth.
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