Lagarde said that while the euro zone’s domestic economy remains “resilient,” lingering global threats could undermine the recent stabilization in activity, and uncertainties remain elevated. The warning came just hours after data showed a huge drop in Germany factory orders, indicating the manufacturing recession in Europe’s largest economy is far from over.

Fundamental economic trends and “the legacy of the financial crisis have driven interest rates down,” Lagarde told European Parliament lawmakers on Thursday. “This low interest rate and low inflation environment has significantly reduced the scope for the ECB and other central banks worldwide to ease monetary policy in the face of an economic downturn.”

The reference to “significantly” reduced space was stronger than the ECB’s statement late last month, when it announced a strategic review into the reasons for low inflation and how to tackle it. It’s partly an acknowledgment of rising concern that the loose policy threatens financial stability by squeezing bank margins and driving asset prices — such as stocks and real estate — to unsustainable levels.

Vice President Luis De Guindos said at a separate event in Madrid that the side effects from policies such as negative interest rate and quantitative easing are becoming “more tangible.”

Lagarde’s message was also aimed at governments though — signaling that they need to step in with fiscal support.

“We have indicated clearly that where there is fiscal space it would be appropriate for policymakers to actually use that fiscal space in order to support the euro-area economy,” she said, while declining to name specific countries.

Lagarde said structural changes in the global economy — aging populations and declining trend growth — mean it’s the right time for the ECB to embark on its review. While the inflation goal of “below, but close to, 2%” will be the primary focus, the president also said climate change, technology and finance will impact prices.

The coronavirus outbreak has become the most immediate concern for some central bankers. The Bank of Thailand on Wednesday cut its key interest rate to a record low, and the Philippine governor hinted a similar move was imminent there. The Monetary Authority of Singapore said there is “sufficient room” for its currency to ease if the virus weakens the economy.

Lagarde said a day earlier that the outbreak has added to economic uncertainty, as did Executive Board member Philip Lane, the ECB’s chief economist. Lane’s predecessor, Peter Praet, told Bloomberg Television on Thursday that the ECB should be wary of rushing in too soon though.

“What worries me probably more — the sort of of perception you know, especially in financial markets, that central banks always have to react,” he said. “Every time you get a shock in the system you get high expectations of a reaction of the central bank that’s quickly incorporated in market expectations. But there’s only so much a central bank can do.”

Lagarde’s two-hour conversation with lawmakers also touched on the U.K.’s departure from the European Union, an event that she said should be the spur for the EU to develop its own capital markets union. Brexit raises question marks over the role of London’s enormous financial center in funding European companies.

“If that is not a triggering factor to engage all of us, I don’t know what else we need,” Lagarde said. “Capital markets union has to happen fast.”

The S&P 500 Index’s four-day rally hit 3.7% as major equity benchmarks added to all-time highs on the strength of solid corporate results and signs that central banks stand ready to act if growth falters. The torrid ascent has some firms warning about a sense of euphoria taking over among investors, especially as the coronavirus epidemic continues to spread and China’s economy remains virtually locked down. Treasuries edged higher and gold climbed in a sign of some demand for haven assets.

In corporate news, Boeing spiked 3.6% after saying it fixed a software bug in its grounded plane. Twitter Inc. rallied 15% after topping projections for fourth-quarter revenue. Strong results helped powered the Stoxx Europe 600 Index to a record. Crude oil edged above $51 a barrel in New York.

“A lot of the moves this week have been explained by a relief rally that the coronavirus seems to be slowing somewhat, clearly there was a lot of uncertainty embedded in market behavior coming in,” said Mark Heppenstall, chief investment officer at Penn Mutual Asset Management. “It does still have a number of question marks still out there.”

– – –

Here are some key events coming up:

– A report on German industrial production is due Friday.

– The U.S. employment report for January is set for Friday release.

– Australia’s central bank chief speaks and takes questions at a parliamentary committee.

– – –

And these are the main moves in markets:

Stocks

– The S&P 500 Index rose 0.3% as of 4 p.m. New York time.

– The Stoxx Europe 600 Index increased 0.4%.

– The MSCI Asia Pacific Index increased 1.8%.

– The MSCI Emerging Market Index gained 1.3%.

Currencies

– The Bloomberg Dollar Spot Index rose 0.2%.

– The euro fell 0.2% to $1.098.

– The onshore yuan was little changed at 6.9708 per dollar.

– The Japanese yen fell 0.1% to 109.98 per dollar.

Bonds

– The yield on 10-year Treasuries fell one basis point, to 1.65%.

– Germany’s 10-year yield fell one basis point, to -0.37%.

– Japan’s 10-year yield rose two basis points, to -0.024%.

Commodities

– West Texas Intermediate crude rose 0.5%, to $51.01 a barrel.

– Gold futures rose 0.5%, to $1,570 an ounce.

He made the remark at a seminar on economic issues, hosted by Phatra Securities.

The novel coronavirus outbreak has affected various industries to different extent and the policy rate cut alone might not be enough to offset the damages.

He warned that use of the interest rate policy might bring unwanted repercussion, saying that diverse fiscal and monetary tools are needed to tackle the problems.

The central bank’ Monetary Policy Committee on Wednesday voted unanimously to trim the policy rate by 0.25 percentage point from 1.25 per cent to the historic low of 1 per cent, effective immediately.

The reduction was in line with MPC’s estimate that Thai economy growth would be lower than its previous forecast, due mainly to the new coronavirus outbreak, delay of the 2020 fiscal budget disbursement and drought.

The rate cut has prompted many banks to follow suit, trimming their lending interest rates for corporate customers.

He added that the MPC move reflected the need for swift action in support of the declining economy and ease financial burden of businesses.

After the rate cut on Wednesday, he said, the central bank called a meeting with executives of many banks urging them to provide more financial assistance to customers affected by the economic slowdown.

PTT has urged the Office of National Water Resources (ONWR) to invite bids on a public-private joint venture that would more carefully manage water use in the East, home to hundreds of thirsty factories and with more development imminent.

President and chief executive Chansin Treenuchagron said on Thursday (February 6) that PTT Group is concerned about the drought situation in the East, noting that conditions depend heavily on the amount of rain that falls in May and June.

In the long run, he said, PTT would like to see a joint venture established to turn seawater into potable water in the Laem Chabang-Map Ta Phut areas of Chon Buri and Rayong, and PTT companies including PTTGC and Thai Oil were ready to participate.

He said the government should accept public-private bids on land reclamation and procuration and offer tax incentives to ease the high costs involved. The technology exists for turning seawater into freshwater, Chansin noted.

The currently strong baht has opened investment opportunities for PTT in the past few years, he said. Phase 3 of the Map Ta Phut Industrial development is expected to rise this year on land reclaimed from the sea. Phase 3 of the Laem Chabang port development will begin drawing investments at the end of the year or early next year.

“PTT Group operations this year still face many risks, including drought, the slow domestic economy and especially the coronavirus outbreak in China, which could affect global demand for oil and plastic beads,” Chansin said. “PTT has adjusted in the last two years to reduce its reliance on the Chinese market by turning to India, Africa and the rest of Southeast Asia, and this may be Thailand’s opportunity to produce substitutes for Chinese goods as well.”

He said PTT, at the direction of Energy Minister Sontirat Sonthichirawong, is negotiating with gas producers in the Gulf of Thailand and providers in Myanmar to reduce purchases in order to preserve resources, and is instead importing more liquefied natural gas, which is cheaper for producing electricity.

However, the negotiations are conducted cautiously so that they don’t affect major purchase agreements or “global daily contracted quantity”. The negotiations are expected to conclude within the first quarter of the year.

LNG for increasing electricity production must be purchased in “appropriate amounts” so as not to increase the “take or pay” burden, Chansin said. PTT might initially procure it in the form of “spot markets” on short-term contracts.

Government measures aimed at reducing the impacts of the baht’s appreciation and the relatively cheaper global price of LNG will lower the cost of producing electricity, he said.

PTT hopes to start importing LNG to spot markets in the second or third quarter, probably less than a million tonnes for short-term use by industries with no access to gas pipelines.

The users would have to switch over to LNG from costlier and more environmentally damaging fossil fuels such as palm oil and coal.

The phase one agreement signed last month quelled the protracted trade conflict that tied up the world’s two most powerful economies, imperiled global growth and caused chaos for multinational corporations. The terms required both nations to de-escalate tariffs, and compelled China to buy an additional $200 billion in American goods over the next two years.

Levies will be slashed from 10% to 5% or from 5% to 2.5% on hundreds of U.S. products starting Feb. 14, China’s finance ministry said. The tariffs on cars, oil, soybeans and other goods date back to September and had been implemented in response to additional tariffs the U.S. had applied in the fall.

The widely expected move comes as China is paralyzed by the coronavirus, which has infected more than 28,000 in the mainland and killed more than 500. It has also brought China’s powerful manufacturing industry to a standstill, as travel restrictions freeze China’s workforce and major companies such as Boeing, Apple and Nike have been forced to close factories until at least mid-February. McDonald’s, Starbucks, KFC, Levi Strauss, H & M and Samsung have closed stores across China. Casinos in Macao, the world’s biggest gambling market, are shutting down for two weeks.

“The recent cut in Chinese tariffs is more about containing the economic damage to China from the coronavirus than it is about trade relations between the two countries,” Brad McMillan, Chief Investment Officer for Commonwealth Financial Network, said in commentary Thursday. “Along with the recent moves by the PBOC to inject money to protect their markets, this is aimed at managing the risk.”

China is the world’s leading oil consumer, and the country’s lockdown has sent shock waves through crude markets. Brent crude prices hit a one-year low earlier this week, and BP has warned the virus could reduce global oil demand by as much as 80% this year. OPEC and its allies have been meeting to discuss oil output in the face of declining demand.

Even if the virus is contained soon, economists are predicting China’s growth rate will fall to between 3% and 4% this quarter.

“Reducing tariffs and importing more food from the U.S. makes a lot of sense for the Chinese. The Chinese government is facing a number of homegrown problems, the major one being the outbreak of the coronavirus,” said Ed Yardeni, president of Yardeni Research. “They are clearly in need of importing more food. The swine flu epidemic last year decimated their pork supply. Now there is evidence their chickens are facing a virus. They need our food. Food inflation is soaring in China. There have also been disruptions in their transportation system, further complicating the food supply.”

China’s ministry of agriculture and rural affairs announced an outbreak of the highly pathogenic H5N1 virus that wiped out 4,500 birds on a poultry farm in the Hunan province earlier this week. The World Health Organization said the virus “does not infect humans easily” and that the person-to-person spread is unusual. But H5N1 compounds dangers for China’s poultry industry, as the coronavirus has made it difficult for farmers to receive chicken feed. Hubei poultry farmers said they were “very distressed” about the situation in a letter to the China Animal Agriculture Association last week.

Experts are skeptical about China’s ability to deliver on the additional $200 billion in American purchases it is supposed to make, and the likelihood seems slimmer given the outbreak. But the pact includes a disaster clause which allows for some leniency in the event of a crisis like the coronavirus. The U.S. is slated to follow suit and cut tariffs on certain Chinese imports from 15% to 7.5%, also on Feb. 14.

In an interview with Fox Business earlier this week, White House National Economic Council director Larry Kudlow acknowledged that the outbreak could delay China’s purchases. But he said the effect on the U.S. economy would be minor.

“We’re just trying to help China right now,” Kudlow said Tuesday. “It’s not going to be that big a deal for us.”

China has agreed to buy an additional $76.7 billion in U.S. goods and services in the first year of the deal – a 41% jump from the $187.5 billion it spent in 2017, according to the office of the U.S. trade representative. The Chinese have agreed to dollar targets for services, as well as for farm goods, energy products and manufactured goods. New sales for American farmers alone are expected to near $40 billion in the first year, up from $24 billion.

U.S. Agriculture Secretary Sonny Perdue said Wednesday that the U.S. should be patient with China if it struggles to hit these targets amid the outbreak, Reuters reported.

“If they’re really trying and it really just blows the economy out of the water, then we would have to be understanding of that,” Perdue said, speaking to reporters at a cattle convention in Texas.”

Farmers were among those hit hardest by the trade war, and the U.S. government has tried to stem the losses with a $28 billion bailout. American farm bankruptcies jumped 20% in 2019, hitting an eight-year high, according to recent analysis from the American Farm Bureau.

Fresh data from the Commerce Department on Wednesday showed that the U.S. trade deficit with China narrowed in 2019 for the first time in three years, as both nations slapped tariffs on hundreds of billions of dollars worth of imports. The deficit with China fell $73.9 billion to $345.6 billion last year.

“China hopes that both sides will abide by bilateral agreements and make an effort to implement relevant provisions so that we can boost market confidence, promote bilateral trade relations and global economic growth,” China’s State Council Tariff Commission said in a statement.

The sign of de-escalation lifted overseas markets, with Hong Kong’s Hang Seng Index closing up 2.5% and Europe’s benchmark Stoxx 600 index on track for its best week of trading since 2016. But Wall Street, which has been on a tear all week, seemed to shrug, with the Dow Jones industrial average flat in early trading.

Exporters will be allowed to keep a larger amount of their profits in overseas accounts, up to one million dollar from the $200,000 currently allowed, he said.

It will lower cost for exporters and at the same time lessen pressure on the baht’s appreciation as exporters need not repatriate large sums of money back to the country.

It will also lead to more balance between capital outflows and inflows, he said.

The baht gained 8 per cent against the US dollar last year.

The currency was highly volatile in the first month of 2020, moving past the Bt30/dollar level and retreating below Bt31.

It weakened at the outbreak of the coronavirus, but has since regained strength.

At the close of trade on Thursday, the weighted-average interbank exchange rate stood at Bt31.078/ dollar, compared with Bt30.110 on January 2, the first day of trade this year, according to the Bank of Thailand.

High current account surplus and slowing investment were blamed for the strong baht.

Their move followed the policy rate reduction by the Bank of Thailand’s Monetary Policy Committee (MPC) on Wednesday (February 5).

Kasikornbank (KBank) was the first to announce a rate cut on Wednesday shortly after the MPC’s decision.

Effective today, KBank has reduced its minimum retail rate (MRR) for SMEs and individual customers to 6.62 per cent from 6.87 per cent.

Siam Commercial Bank (SCB) will lower its Minimum Loan Rate (MLR) to 5.775 per cent from 6.025 per cent, effective tomorrow.

Recently the bank launched a six-month grace period for repayment of the loan principal amount to existing customers in the hotel business as an urgent measure to help mitigate the impact on their business from the coronavirus crisis.

Government Housing Bank (GH Bank) will trim MLR, minimum retail rate (MRR) and Minimum Overdraft Rate (MOR), effective tomorrow.

It will cut MLR from 6 per cent a year to 5.875 per cent, MRR from 6.5 per cent a to 6.375 per cent and MOR from 6.750 per cent a year to 6.500 per cent.

Government Savings Bank (GSB) will cut both MRR and MOR from 6.745 per cent to 6.495 per cent tomorrow. Krungthai Bank (KTB) will also cut its minimum loan rate (MLR) from 6.025 per cent per year to 5.775 per cent, effective tomorrow.

The MPC on Wednesday voted unanimously to trim the policy rate by 0.25 percentage point from 1.25 per cent to 1 per cent, effective immediately.

The reduction was in line with MPC’s estimate that Thai economy growth would be lower than its previous forecast, due mainly to the new coronavirus outbreak, delay of the 2020 fiscal budget disbursement and drought.

For goods with 10 percent tariffs since Sept 1, 2019, the rate was decreased to 5 percent, and for those with 5 percent tariffs the rate was adjusted to 2.5 percent, per a statement from the commission.

The commission said subsequent adjustments depend on changes in the Sino-US economic and trade situation, and China hopes to work with the US to try to eliminate all additional tariffs.

In addition, China will continue to work on the exclusion of additional tariffs on US products. “The previous measures of tariff exclusion, which have been released, remain in effect,” according to the statement.

The move came as a response to US tariff adjustments starting Feb 14, the commission said. On Jan 16, the US government announced it would cut the additional tariffs on $120 billion in imported goods from China, down from 15 percent to 7.5 percent.

“China hopes the two sides can follow the agreement, implement relevant content, enhance market confidence, improve the bilateral economic and trade relations and promote global economic growth,” the commission said.

The measures also include incentives to help strengthen the grassroots economy and the tourism industry.

“The measures aim to support investment at all levels, from large projects with a significant economic impact to community-level businesses,” BOI secretary general Duangjai Asawachintachit told reporters after the meeting chaired by Prime Minister Prayut Chan-o-cha.

In a follow-up to the “Thailand Plus” package announced by the BOI in September, the first new measure aims to accelerate investment in large-scale projects eligible for corporate income tax-exemptions of 5-8 years by offering an additional 50 per cent corporate income-tax deduction for a period of five years if they realise an investment of not less than Bt500 million in 2020 or a total of not less than Bt1 billion by the end of 2021.

Qualified projects must submit applications before December 30 this year.

To encourage the private sector to participate more actively in improving the competitiveness of the grassroots economy in agriculture and agricultural processing, light industries and community tourism, the BOI approved an extension and improvement of a promotion measures allowing companies to enjoy tax benefits when they invest in such projects.

The revised definition of qualified applicants now includes businesses that have not previously received BOI promotional privileges, as long as they operate in sectors promoted by the BOI. Also, businesses currently enjoying corporate income-tax exemptions can claim additional tax benefits if they invest in or spend on the grassroots economy. Applications for this scheme must be submitted by the end of 2021.

To support the tourism sector and encourage the development of environmentally friendly infrastructure in tourist areas, as well as promoting tourism in less-visited provinces, the BOI extended tax privileges for investments in cable car projects at tourist sites to include electricity-powered tramways, with investments worth at least Bt100 million.

The BOI also relaxed conditions for the hotel business, particularly for SME operators.

Enhanced tax incentives are also given to hotels in 55 less-visited provinces.

In 2019, investment applications filed through the BOI were worth Bt756.1 billion, topping the government’s target.

Of the total value, Bt506.2 billion worth or 67 per cent were applications for foreign direct investment.