Monday, March 16, 2020

Asia Times: Investors rattled after the Fed cut rates by 100bps ahead of its scheduled meeting this week

Tags
  • Dollar
  • Gold
  • Yen
  • Pound
  • Stocks
  • Oil
  • Federal Reserve

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Market Recap: Investors rattled after the Fed cut rates by 100bps ahead of its scheduled meeting this week

Stocks on Wall Street rebounded on Friday yet again after US President Donald Trump declared a national emergency to help combat the virus. Declaring the coronavirus outbreak an emergency allows the US government to use additional resources to combat the outbreak, giving investors more optimism that the economic impact of the virus can be lifted. Each of the major indices in the US jumped more than 9% on Friday as a result.

Indexes Daily Change (%) Net Change Closing Price
Dow Jones +9.36% +1,985.00 23,185.62
S&P500 +9.29% +230.38 2,711.02
Nasdaq +9.35% +673.07 7,874.88
*Source: Bloomberg

But Friday's 9% spike wasn't able to stop the Dow from bleeding out double digits last week. The Dow, S&P500 and Nasdaq fell 10.36%, 8.79% and 8.17% over the week. European stocks fared much worse, as major economies in the bloc added new cases of the virus at a rapid rate. As of Monday morning, Italy's cases of the virus jumped to over 24,000 with its death toll reaching 1,809. Cases in France and Spain climbed to more than 5,000 while cases in Germany  rose to over 4,800.

Indexes Weekly Change (%) Net Change Closing Price
Dow Jones -10.36% -2,679.16 23,185.62
S&P500 -8.79% -261.35 2,711.02
Nasdaq -8.17% -700.74 7,874.88
FTSE100 -16.97% -1,096.44 5,366.11
Euro Stoxx -19.99% -646.05 2,586.02
German Dax -20.01% -2,309.79 9,232.08
Nikkei -15.99% -3,318.70 17,431.05
KOSPI -13.17% -268.78 1,771.44
ASX200 -10.89% -676.92 5,539.30
CSI300 -5.88% -243.20 3,895.31
Hang Seng -8.08% -2,113.76 24,032.91
Straits Times -11.04% -326.98 2,634.00
*Source: Bloomberg

Elsewhere, the yen fared the worst among major currencies as risk aversion in financial markets fell. Sterling was close behind after the US extended its travel ban to the UK as well. The dollar advanced against most major currencies after Trump's emergency declaration, although the Canadian dollar managed to gain against the greenback after the Bank of Canada cut interest rates to help relieve its economy.

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Demand for safe haven assets fell on Friday as investors shifted yet again to riskier assets. Gold fell 2.94% on Friday to lose 8.60% over the week. Yen and US Treasuries fell as well. Benchmark 10-year yields jumped 15.61% to 0.96%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -2.94% -46.32 1,529.83
Silver -6.96% -1.10 14.45
JPY -2.85% -2.98 107.62
*Source: Bloomberg
US Treasury yields Daily Change (%) Yield (%)
2-Year +0.9 0.49%
10-Year +15.6 0.96%
30-Year +8.9 1.53%
*Source: Bloomberg

Oil prices gained after Trump ordered US energy officials to increase the US' oil reserves on Friday. The announcement helped lift oil prices in the later part of the trading session, but wasn't enough to help save crude oil prices from its collapse over the week. Brent and WTI crude oil futures lost 25.23% and 23.13% of its value of the week.

Oil Futures Daily Change (%) Net Change Closing Price
Brent Crude +1.90% +0.63 33.85
WTI Crude +0.73% +0.23 31.73
*Source: Bloomberg

Meanwhile, Asian equity indices looks mixed on Monday morning as investors weigh the effects of the Fed's announced 100bps rate cut on Sunday. Following the Fed's rate cut, the RBNZ slashed its rates by 75bps to 0.25%, while signalling that it would turn to quantitative easing for the first time if further stimulus was needed.

The Fed cut its rates ahead of its scheduled FOMC later this week (which it cancelled) by 1% to a target range of 0% to 0.25% on Sunday. The central bank also said that it would spend an additional US$700bn in asset purchases. But investors will likely question the central bank's urgency in bringing forward its decision by three days instead of waiting for its scheduled meeting. While Fed Chair Jerome Powell has said that negative interest rates are not on the agenda, the central bank likely still has room to ease more. The aim of the additional asset purchases is to help keep the money market functional and liquid. This means that the central bank can introduce a more targeted quantitative easing program later in the year that is aimed at helping businesses affected by the coronavirus. US futures sank more than 4% as of Monday 9.14am (GMT +8) however, as the financial market viewed the move as worrying instead of relieving.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei Index -0.28% -48.61 17,382.44 8:53:55 AM
KOSPI Index +0.52% +9.20 1,780.64 9:13:50 AM
ASX200 Index -5.09% -282.10 5,257.20 9:13:36 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -4.56% -1,041.00 21,798.00 9:14:26 AM
S&P500 Futures -4.79% -128.50 2,555.50 9:14:20 AM
Nasdaq Futures -4.55% -359.75 7,541.00 9:14:12 AM
*Source: Bloomberg

Expect more monetary stimulus packages this week as the RBA and BOJ are set to decide on monetary policy later in the week. Also, another week of high volatility should be expected as travel bans start to be implemented across the globe thanks to surging cases of the coronavirus across multiple countries.

Economic releases for the day ahead include (all timings in GMT +8):

  • China Feb Industrial Production (10am)
  • Japan BOJ Monetary Policy Decision (11am)
  • US Mar Empire Manufacturing PMI (8.30pm)