Morning Minutes 3/16/2019

Morning Minutes

Stocks Plunge Again As Central Banks Increase Stimulus Again

March 16, 2020
8:45 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

Stocks and commodities are under pressure again, particularly in North America and Europe. US index futures have been limit down overnight with 5% declines. In Europe, the FTSE is down 7.2% while the Dax, CAC and FTSEMIB are down 8.7%-9.6%. Australia, one of the most similar markets to Canada, plunged 9.7% overnight. Crude oil is under pressure again today with WTI crude oil down 8.3% and falling below $30.00/bbl toward $29.00.

This wave of selling pressure appears to have been sparked by the surprise weekend announcement from the Fed that they are immediately cutting the Fed Funds rate to 0.00% from 1.00% and launching a new $700B asset purchase (quantitative easing). This move seems to have sparked more questions than answers for investors, particularly “What has spooked the Fed so much that they couldn’t wait until their regularly scheduled policy decision on Wednesday for this announcement?” In my opinion, the biggest problem for investor confidence is not knowing how bad things could get and how long disruptions could last.

On the other hand, there have been some positive developments. China seems to be coming out the other side of the outbreak. Active cases in the country are down to about 9,000 from a peak of about 57,000 a month ago (source worldometers.info). Apple announced over the weekend it is closing its stores around the world temporarily to combat coronavirus except for China where they had just reopened last Friday after being closed for several weeks.

Additional steps are being taken around the world to slow the spread of COVID-19 and to provide economic support. Overnight, the Bank of Japan announced plans to increase asset purchases while the Reserve Bank of New Zealand announced an emergency 0.75% interest rate cut to 0.25%. Investors may look to governments for more support from the fiscal side. There is supposed to be a G-7 conference call today and Canadian officials have hinted at more potential announcements coming.

Finally, currency markets appear to be reacting more to the Fed’s indication that it does not expect to go to negative interest rates, a suggestion that after the big moves of recent weeks, they have gone all-in and could be close to done for now. The US Dollar has been rallying this morning, gaining 2.5% against the Yen, and 0.4%-0.8% against the Euro, Pound and Loonie. Gold just fallen off a cliff after breaking down below $1,500/oz and is now down 3.75% near $1,460. The US 10-year yield has climbed back up toward 0.75% after dipping toward 0.60% overnight so US bond prices are starting to come down as well.

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