The heads of three major central banks on stage together

While the smoke of the U.S. election has not yet cleared, on Friday morning at 00:45, Fed Chairman Powell, ECB President Lagarde, the Bank of England Governor Bailey will attend the ECB Forum. A number of heavyweights gathered in a good show, investors must be eagerly awaiting, in order to get more clear policy signals from them.

This year, the ECB Forum will focus on two main themes.

First, the impact of changing global fundamentals on central banks.

The second is a framework for macroeconomic stability in the new economic environment.

Lagarde heavy opening show, markets say they’re pleased

Wednesday, the European Central Bank President Lagarde took the lead in delivering a speech, marking the official start of the ECB forum, in which he made it clear that monetary policy to ensure favorable financing conditions for the entire economy is essential, we will continue to provide the necessary financing conditions to protect the economy from the impact of the epidemic.

In addition, Lagarde also highlighted two of the stars in the ECB’s toolbox “magic”, saying.

“While all options are on the table, the Emergency Anti-Epidemic Bond Purchase Program (PEPP) and the Targeted Long-Term Refinancing Operation (TLTRO) have proven their effectiveness in the current environment and can be dynamically adjusted to respond to the evolution of the epidemic. As we develop a new stimulus plan next month, we will focus on buying more emergency bonds and providing cheap loans for banks.”

Finally, Lagarde mentioned that the path of economic recovery from the epidemic crisis is likely to be bumpy, and while the latest news on vaccines looks encouraging, we could still face a cycle of accelerated spread of the virus and tightening of restrictions until widespread immunization is achieved.

In terms of market reaction, as well as being buoyed by the recent positive news on vaccines, Lagarde’s inspiring speech also boosted markets, with European stocks rising across the board on Wednesday, the third consecutive day of gains.Jack Alan Reynolds, Senior European Economist at Capital Economics, stated.

“Lagarde sent a clear and encouraging message that the positive news on vaccines will not affect the easing policy that the ECB will implement this December.”

What to watch for next when the three governors share the stage?

From the schedule of the ECB Forum, Fed Chairman Powell, ECB President Lagarde, and Bank of England Governor Bailey will appear as the finale, leaving an hour for these three to take the stage, then in this hour, the convergence of the three governors is expected to give the market guidance on the future path of global central bank easing.

Federal Reserve.

On the whole, Powell’s recent comments on the side of doves. In the November Federal Reserve interest rate resolution meeting, Powell stressed that the Fed is not “out of ammunition”, if the epidemic worsens, will study the introduction of more policy tools. Subsequent press conference, Powell proposed further adjustments to the asset purchase plan in the future. The meeting, investors need to pay attention to Powell will mention whether the details of the asset purchase plan adjustment information.

It is worth noting that the Federal Reserve this year to withstand the epidemic crisis and the launch of emergency credit arrangements, many will expire on December 31, Powell whether to mention the future arrangements of the program is also a major point of view in this meeting.

But given that any reapproval would require the consent of the Trump administration, this would add to the uncertainty over whether the Fed’s emergency measures can be successfully extended, potentially further exacerbating the dollar’s recent volatility.

European Central Bank (ECB)

The second outbreak of the European epidemic has put the real economy and financial markets under enormous pressure. The overall level of output in the euro area is currently falling sharply. Moreover, as shown in the chart below, ECB officials have calculated that the epidemic will continue to depress potential output in the euro area until the end of 2021.

The European Central Bank President Lagarde also said earlier that the second new crown epidemic for the eurozone economic recovery poses “significant risks”. ECB chief economist Lien believes that “although the new coronavirus may be contained, but if the control of the epidemic failed, we must prepare for a worse situation.”

With the triple whammy of the neo-crown epidemic, euro upturn, and deflation, the ECB has hinted that it may ease policy further at its December rate decision meeting. Economists expect that the main way the ECB will increase easing will be to extend and expand its bond-buying program.

In summary, investors at the forum can focus on whether Lagarde will reveal detailed information about the December hike in easing. In addition, if the evening Lagarde published for December ECB easing policy guidelines, the European and American currencies also have a greater probability of falling, investors should pay attention.

Bank of England

After the UK announced a while ago that it had finished sealing the city, the Bank of England announced at the interest rate decision meeting on November 5 that it would keep interest rates unchanged, but oversold the expansion of government bond purchases by £150 billion to £875 billion, and unanimously kept corporate bond purchases unchanged at £20 billion. Investors can pay attention to whether Bank of England Governor Bailey will reveal the bond purchases at this forum.

In terms of interest rate policy, pay attention to whether Bailey will mention the expression of negative interest rates, because it is still possible to join the global negative interest rate “camp” in the future. Since the outbreak of the new crown epidemic, the Bank of England many times to discuss the feasibility of implementing negative interest rates, and in October began to ask commercial banks they are ready to implement negative interest rates.

Although the Bank of England governor Bailey and deputy governor Ramsden said not yet ready to implement negative interest rates, but British policymakers have started negative interest rate research and discussion within.

All in all, central bankers may also comment on this, as globalization, climate change and digitalization are reflected in the agenda of the conference. But more importantly, they will also signal the direction of monetary policy. In this way, the trio will be quite interesting to watch.