Central banks boost markets, economy in “depression-like crisis”

Markets were mostly higher on Thursday.

The S&P 500 rose 1.1 percent while the STOXX Europe 600 rose 0.7 percent.

Earlier in Asia, though, markets fell, with the Nikkei 225 falling 1.2 percent.

US stocks got a boost after the Federal Deposit Insurance Commission and Office of the Comptroller of the Currency said they are planning to loosen the restrictions imposed by the Volcker rule.

The Federal Reserve did subsequently put new restrictions on bank share buybacks and dividend payments after its annual stress test found that several banks could get uncomfortably close to minimum capital levels in scenarios tied to the COVID-19 pandemic.

European stocks were boosted by a European Central Bank announcement that it would offer euro loans against collateral to central banks outside the euro area to backstop funding markets amid the COVID-19 pandemic.

Meanwhile, the third and final reading of first-quarter US gross domestic product confirmed that the economy contracted at an annualised pace of 5 percent.

However, the US economy is already showing signs of recovery, with durable goods orders rising 15.8 percent in May and new jobless claims falling in the week ended 20 June from the previous week.

Still, a Reuters poll of over 250 economists taken this month showed that most think the ongoing recessions in most major developed economies would be deeper than predicted last month.

“We expect global GDP to surpass pre-COVID levels only in late 2021, and later still for advanced economies,” said Ajay Rajadhyaksha, head of macro research at Barclays. “And much could still go wrong, especially if the virus has a second wave.”

“To call this crisis a recession is a misnomer,” said David Shulman, senior economist at UCLA Anderson School of Management. “Make no mistake, the public health crisis of the pandemic morphed into a depression-like crisis in the economy.”