INSIGHTS

Stefano Sciacca

Mon, Mar 16


Stocks Fall Pre & Post Fed’s Massive Intervention

 

The stock market has started a new week very choppy, after the ECB, BOE and the Federal Reserve decided to support their respective economies in different ways. The Bank of England and the ECB seemed to prioritise weaker businesses, especially local SMEs, with specific targeted interventions. On the other hand, the Fed has, once again, slashed the Fed Rate by 1% to 0%-0.25%. Additionally, the US central bank initiated a $700bn Quantitative Easing program to inject further liquidity into the market. 

 

The first reaction from the market has been a quick spike higher on US stocks futures, followed by a similarly quick drop in value. Market participants appear to be focused on the short side, ignoring purely financial measures, as an even more expansionary monetary policy might not be very impactful to fight what can be defined as an exogenous shock and black swan event. The SPY (a NYSE traded ETF replicating the SP500 performance) suggests an opening bell of roughly 9.5% lower for the US stock index.

 

 

For once, central banks will likely not have the power to control what seems to be an inevitable recession and economic downturn. On the positive side, many economists predict that such recession might not last as usual, with an average duration estimate of 3 to 4 months. 

 

Meanwhile, airline companies, travel agencies, travel FX companies, semiconductors, and financials are all struggling. Gold has also not been immune with a steep fall due to a general lack of liquidity amongst market operators and a broad “cash run”, to cover margin calls on levered long positions. 

 

 

Oil has been sold heavily as no solution appears to be imminent from either the Russian or OPEC side. Consequently, CADJPY (down 2.6% today) has also sold off and continues to weaken. On the Fixed Income side, US 10Yr Treasuries recovered from the lowest yield at 0.36% for now trading at around 0.77%. 

 

 

The Japanese Prime Minister announced a G7 conference call will be arranged for Monday afternoon to discuss potential coordinated action from the biggest economies worldwide. On the data front, February Chinese collapsed significantly more than expected. Chinese Industrial Production was down 13.5%, Retail Sales down 20.5%, Property Investments down 16.3% and the Jobless Rate up to 6.2%.

 

 

The Week Ahead 

 

Monday:

 

  • House Price Index – China 
  • Interest Rate Decision – Bank of Japan 

 

 

Tuesday:

 

  • RBA Meeting Minutes 
  • Employment Change – UK 
  • ZEW Economic Sentiment Index – Germany & Eurozone 
  • Retail Sales – US 
  • Manufacturing Production - US 

 

 

Wednesday:

 

  • Inflation Rate – Eurozone 
  • Housing Starts – US 
  • Fed Interest Rate Decision – US 
  • Inflation Rate - Japan 

 

 

Thursday:

 

  • Philadelphia Fed Manufacturing Index - US 

 

 

Friday:

  • PPI – Germany 
  • Loan Prime Rate – China 
  • GDP - Russia 

 


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