Action is now priced in
Including central bankers on the planned G7 conference call for Tuesday has boosted stock markets and oil. Even with sentiment better, Treasury yields are still lower in a sign that the move is all about central banks. A further clue is the rise in the euro, which suggests its yield disadvantage is about to be closed.
The problem for central banks is that they've now lost the element of surprise. The time to do this was last week but the situation evolved so quickly in markets that, practically, it would have been almost impossible to execute.
Without surprise, the cadre of central bankers risks disappointment. If the Fed only offers 25 bps combined with a hint at more on March 18, will that be enough? I fear it won't be.
Any cut could be immediately counteracted by signs of a true outbreak in the US and that might be a game the Fed doesn't want to play.
The hope for 'coordination' is also a mixed picture. The Fed and the BOC have a decent amount of ammunition and Australian has room for a cut or two, but the ECB and BOJ are tapped out. Sure then can offer a token gesture but that also risks disappointment.
Finally, I think markets are front-running any action and even if we do get something substantial, there is going to be some 'sell the fact' pressure and that could be misinterpreted as a sign of weakness.
