Fed Response Unable to Soothe Investors’ Nerves……

U.S equities were again solidly lower, triggering yet another 15-minute trading halt to begin the day, as the spreading of the COVID-19 pandemic intensified, prompting unprecedented measures worldwide in an attempt to contain the outbreak and ease the heightened anxiety. However, the uncertainty surrounding the economic impact and the current standard of living remained elevated, and the Fed’s emergency rate cut to zero and quantitative easing measures yesterday, which was accompanied by a host of global central bank responses, appeared unable to calm the markets. Treasury yields fell sharply, while the U.S. dollar, gold and crude oil prices all finished lower. The week’s economic calendar kicked off with the sharpest drop in regional manufacturing activity in New York since 2009 in one of the few looks at data in the midst of the pandemic. Markets in Europe and Asia also saw solid losses.

The Dow Jones Industrial Average plunged 2,997 points (12.9%) to 20,189, the S&P 500 Index tumbled 325 points (12.0%) to 2,386 and the Nasdaq Composite fell 970 points (12.3%) to 6,905. In heavy volume, 1.8 billion shares were traded on the NYSE and 4.5 billion shares changed hands on the NASDAQ. WTI crude oil lost $3.03 to $28.70 per barrel and wholesale gasoline was $0.21 lower at $0.69 per gallon. Elsewhere, the Bloomberg gold spot price declined $34.48 to $1,495.35 per ounce, while the Dollar Index—a comparison of the U.S. dollar to six major world currencies—decreased 0.7% to 98.05.

The global markets continued to see pressure amid the severe impact of economic activity and standard of living across the world as a result of the COVID-19 pandemic, as U.S. trading activity briefly halted for 15 minutes, falling more than 7.0% just after the opening bell.

The markets appeared to shrug off a flood of monetary policy responses, headlined by the measures taken over the weekend from the Federal Open Market Committee (FOMC). The FOMC, after replacing its two-day monetary policy meeting scheduled to conclude on Wednesday with an emergency meeting on Sunday, announced that it is taking its target for the fed funds rate down to a range of 0.00-0.25%, from 1.00-1.25%. Moreover, the Fed announced a $700 billion quantitative easing (QE) campaign aimed at supporting the flow of credit to households and businesses, and supporting smooth functioning of markets for Treasury securities and mortgage-backed securities. The Central Bank said it will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion. In addition, the Fed recently expanded its overnight and term repurchase agreement operations (REPOs), announcing midday that it will offer an additional $500 billion in an overnight operation to what it has already provided. The Fed unveiled several other actions, including extending discount window for banks to as long as 90 days, cutting the discount rate for banks by 125 basis points (bps) to 0.25% and reducing bank reserve requirement ratios to 0%, and—in coordination with other central banks—measures to boost liquidity via U.S. dollar liquidity swap line arrangements, with the Bank of Canada (BoC), Bank of Japan (BoJ), Bank of England (BoE), the European Central Bank (ECB) and Swiss National Bank (SNB). The FOMC concluded that it will continue to closely monitor market conditions and is prepared to adjust its plans as appropriate.

At the press conference following the announcement, Fed Chairman Jerome Powell noted that Q2 economic activity will be weak, but the outlook beyond that is highly uncertain—and there will be no Fed forecasts this month and its next likely projections will be delivered in June. Powell said banks are well capitalized and the Fed has room to combat the virus slump, as the Central Bank “still has space to keep acting,” but stressed that there could be a need for fiscal stimulus. Also Powell noted that he doesn’t see negative rates “as appropriate.”

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