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Stocks dive as Fed & co fail to calm panicky markets

EconomyMar 16, 2020 05:56AM ET
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© Reuters. Signage is seen outside the entrance of the London Stock Exchange in London

By Marc Jones and Wayne Cole

LONDON/SYDNEY (Reuters) - Stock markets were routed and the dollar stumbled on Monday after the Federal Reserve slashed U.S. interest rates in an emergency move and its major peers offered cheap U.S. dollars in a bid to prevent global lending markets seizing up.

The drastic maneuvers were aimed at cushioning the economic impact as the breakneck spread of the coronavirus all but shut down more countries, but they had limited success in calming panicky investors.

Europe, which has become the epicenter of the outbreak, saw its main stock markets plunge nearly 8% in brutal opening trade. Earlier, Wall Street futures for the S&P 500 index had hit their down-limit in the first 15 minutes of Asian trading as investors rushed for safety.

"The central banks threw the kitchen sink at it yesterday evening yet here we are (with deep falls in stock markets)," said Societe Generale (PA:SOGN) strategist Kit Juckes.

"There is a great sense that central banks are going to get to grips with the issues of getting money flowing ... But the human problem, the macro problem, there is nothing they can do about that."

The Fed's emergency 100 basis point rate cut on Sunday was followed on Monday by further policy easing from the Bank of Japan in the form of a pledge to ramp up purchases of exchange-traded funds and other risky assets.

New Zealand's central bank also shocked by cutting rates 75 basis points to 0.25%, while the Reserve Bank of Australia (RBA) pumped more money into its financial system. South Korea cut rates and Russia rushed together a $4 billion anti-crisis fund.

Japanese Prime Minister Shinzo Abe said G7 leaders would hold a teleconference at 1400 GMT to discuss the crisis.

MSCI's index of Asia-Pacific shares outside Japan tumbled 4% to lows not seen since early 2017, while the Nikkei fell 2% as the BoJ's easing steps failed to reassure markets.

Chinese data underscored just how much economic damage the disease has already done to the world's second-largest economy, with official numbers showing the worst drops in activity on record. Industrial output plunged 13.5% and retail sales 20.5%.

In Asia, Shanghai blue chips fell 3% overnight even as China's central bank surprised with a fresh round of liquidity injections into the financial system. Hong Kong's Hang Seng index tumbled 3.4%.

Australia's S&P/ASX 200 plunged, finishing down 9.7% -- its steepest fall since the 1987 crash.

"By any historical standard, the scale and scope of these actions was extraordinary," said Nathan Sheets, chief economist at PGIM Fixed Income, who helps manage $1.3 trillion in assets. "This is dramatic action and truly does represent a bazooka.

"Even so, markets were expecting extraordinary action, so it remains to be seen whether the announcement will meaningfully shift market sentiment."

Sheets emphasized investors wanted to see a lot more U.S. fiscal stimulus and evidence the Trump administration was responding vigorously and effectively to the public health challenges posed by the crisis.

"The performance of the economy and the markets will be mainly determined by the severity and duration of the virus outbreak," he said.

(GRAPHIC: Coronavirus pummels markets - https://fingfx.thomsonreuters.com/gfx/mkt/13/3464/3425/Pasted%20Image.jpg)

UNDER STRAIN

Markets have been severely strained as bankers, companies and individual investors stampede into cash and safe-haven assets while selling profitable positions to raise money to cover losses in savaged equities.

To ease the dislocation, the Fed cut interest rates by a full percentage point on Sunday to a target range of 0% to 0.25%, its second cut this month, and promised to expand its balance sheet by at least $700 billion in coming weeks.

Five of its peers also joined up to offer cheap U.S. dollar funding for financial institutions facing stress in credit markets.

U.S. President Donald Trump, who has been haranguing the Fed to ease policy, called the move "terrific" and "very good news".

"It may be a shot in the arm for risk assets and help to address liquidity concerns ... however, it also raises the question of whether the Fed has anything left in the tank should the spread of the virus not be contained," said Kerry Craig, global market strategist at J.P. Morgan Asset Management.

"We really need to see the fiscal side ... to prevent a longer than needed economic slowdown."

The Fed's rate cut combined with the promise of more bond-buying pushed U.S. 10-year Treasury yields down sharply, to 0.68% from 0.95% late on Friday.

It was a different story in Europe, where Southern (NYSE:SO) European bond yields jumped to multi-month highs as investors continued to worry about the rapid spread of the virus there.

Spanish and Portuguese 10-year bond yields rose to 9-1/2 month highs at 0.74% and 0.93% respectively, up as much as 13 basis points on the day.

French 10-year yields also soared as much as 14 basis points to 3-1/2 month highs at 0.14%, while Italian 10-year yields were up 17 basis points at 1.98%.

"The momentum we've seen in the periphery is largely to do with the sentiment toward debt metrics in countries which after many, many years of quantitative easing and existing central bank support within the euro zone, are going into another fairly significant if not larger crisis than the one before," said Rabobank strategist Matt Cairns.

The fall in U.S. Treasury yields had pressured the dollar early on Monday, though it regained some ground later on. It was last down 1.6% on the Japanese yen at 106.37. The euro was up almost 1% at $1.1212.

The commodity-exposed Australian dollar fell as much as 0.3% to $0.6166 while the New Zealand dollar slipped 0.2% to $0.6044.

Oil, already reeling from a price war, fell further on concerns about the impact of coronavirus on global demand. Brent crude was last off $2.21, or 6.5% at $31.64 per barrel while U.S. crude slipped $1.64 to $30.94 a barrel.

Gold rallied 0.8% to $1,541.34.

Stocks dive as Fed & co fail to calm panicky markets
 

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Comments (22)
Ed Nelson
Ed Nelson Mar 16, 2020 6:56AM ET
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Waiting until the DOW breaches 14,000. Will finish buying at 12,000. Won't be the bottom but will, eventually, be very profitable. Quit buying while its high. 20,000+ is too high!
Manuel Casinhas
Manuel Casinhas Mar 16, 2020 5:55AM ET
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100% sure
Hunt Richardson
Hunt Richardson Mar 16, 2020 2:54AM ET
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only a meaningful reduction in the number of new virus cases evidencing a reduction in the rate of growth and/or effective vaccine will turn this around
Manuel Casinhas
Manuel Casinhas Mar 16, 2020 2:54AM ET
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I agree
Michael Jones
Michael Jones Mar 16, 2020 1:34AM ET
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Come on Trump, come out with some executive power to lift stocks. Do something other than relaying on the fed
Hunt Richardson
Hunt Richardson Mar 16, 2020 1:34AM ET
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The president's executive power and privileges do not extend to the stock market
Dietmar Stahl
Dietmar Stahl Mar 16, 2020 1:29AM ET
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Who care about zero interest when nobody is working
Buzzy Jefferson
Buzzy Jefferson Mar 16, 2020 1:03AM ET
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Another Canadian socialist Reuters prayer for the ruin of America. Just lovely..
Domino Huynh
Domino Huynh Mar 15, 2020 11:57PM ET
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need to chill on that thesaurus
Notvery Goodathis
Peteymcletey Mar 15, 2020 11:43PM ET
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They still his things left in the tank. Could temporarily ban short selling. Perhaps they even consider buying ETFs like Japan.
Jérémie Ponseel
Jérémie Ponseel Mar 15, 2020 11:43PM ET
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What happen to people whonhave invested in short? In europe a lot. Of them are already suspended. What haolen when they reopen? Will they still be at the same level when they close or will they open higher?
John George
John George Mar 15, 2020 11:31PM ET
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Why does Warren Buffet say theres low gravity pull on assets when theres low interest rates ? If many are saying apocolyose ? I followed him in 1999 & 2008 and it worked out .
Justin General
Justin General Mar 15, 2020 10:26PM ET
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150 basis points in less than 2 weeks, wow!
Robert Flores
Robert Flores Mar 15, 2020 10:08PM ET
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How come nobody mentions that the biggest creditor is the US govt. they arecutting rates so that the govt doesnt go bankrupt . Govt accounts for 1/3 of GDP
Neeraj Bapat
Neeraj Bapat Mar 15, 2020 10:08PM ET
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I hope u meant biggest debtor
John George
John George Mar 15, 2020 10:08PM ET
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Like in 2009 ?
Bobster Bambino
Bobster Bambino Mar 15, 2020 9:53PM ET
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Buying opportunity! All in
Robert Flores
Robert Flores Mar 15, 2020 9:53PM ET
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Buying opportunity wont come in till 2021,
Ron Warren
Ron Warren Mar 15, 2020 9:53PM ET
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Are you kidding?
John George
John George Mar 15, 2020 9:53PM ET
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2009 fed lowered rates to 0.16%t- 0.25% do you think it still corolates ?
Michael Jones
Michael Jones Mar 15, 2020 9:53PM ET
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not yet, buying opportunities are yet to come.
Junk Man
Junk_Man Mar 15, 2020 9:48PM ET
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Trump reelection is f, *C.* K'ed
Buzzy Jefferson
Buzzy Jefferson Mar 15, 2020 9:48PM ET
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@Jun - So America is going to elect a senile socialist because China gifted the world with yet another nasty virus? That's a nutty little position you disgorge on us..
Bill Maxwell
Bill Maxwell Mar 15, 2020 9:48PM ET
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Buzzy Jefferson biden is not a socialist. Sanders isnt winning. Get your facts straight.
Rob Fordham
Rob Fordham Mar 15, 2020 9:42PM ET
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We are going to on purpose throw the economy into a recession ti slow down a virus. Fed is just doing what it can to mitigate it but at sime point the medical indusrty will come up with something and when it does we will have a ton of fiscal stimulus to help
Rob Fordham
Rob Fordham Mar 15, 2020 9:40PM ET
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We all knew this was comimg this week not sure why it coming on sunday vs monday matters.
Chris Sundo
Chris Sundo Mar 15, 2020 8:17PM ET
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Psychological profiling of DT was ignored by American voters before they voted for him
Muhammad Majeed
Muhammad Majeed Mar 15, 2020 8:12PM ET
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This is something that has not peaked yet. And nobody knows where the peak actually is. Can't through money out of window in dark space.
Mark McCarthy
Mark McCarthy Mar 15, 2020 8:07PM ET
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Fed is in a panic. Why should the rest of us not be concerned.
Jack Zhang
Jack_A Mar 15, 2020 8:04PM ET
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This is a "wrong medicine" to the virus, and DT will continue to complain to further cut down rates to negative zones. God, we need you to give wisdom to the leaders.
Ben Dover
Ben Dover Mar 15, 2020 8:03PM ET
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How can dropping 1% on an emergency Sunday announcement going to be seen as a bullish sign.
Ron Warren
Ron Warren Mar 15, 2020 8:03PM ET
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It's not! The FED knows we're in serious trouble.
Buzzy Jefferson
Buzzy Jefferson Mar 15, 2020 8:03PM ET
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Ron Warren Just as President Trump placed travel bans very early on, and despite socialists screaming xenophobia, The Fed is doing what it can to get out ahead of the "light out hair on fire" behavior of the socialist democrat cabal and their MSNBC-CNN-Reuters-Bloomberg lap dogs. If the left in this country were remotely rational, there would be far less need for the government to take such measures. This whole thing is on China and their American shills in the deep state, socialist media and academia.. Enough of the deflection and projection. The country needs a break now..
joe donzi
joe donzi Mar 15, 2020 8:01PM ET
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search Dr Francis Boyle , author of the US Bio-weapons Act of 1989 and learn what the Fed already knows.
Jan Buyle
Jan Buyle Mar 15, 2020 8:01PM ET
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there are the conspiracy guys again...
joe donzi
joe donzi Mar 15, 2020 8:01PM ET
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Jan Buyle I wish somebody would prove that this is not a bio weapon , it certainly is behaving like one, and all governments react as if it was one. peace to all.
Buzzy Jefferson
Buzzy Jefferson Mar 15, 2020 8:01PM ET
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joe donzi Exactly Joe.. It sure is quacking like a duck..
Al Vlaj
alvlaj Mar 15, 2020 7:46PM ET
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Cutting on a Sunday just expresses that there is a reason for further concern. It makes them look panicked.
Chris Wirth
Chris Wirth Mar 15, 2020 7:46PM ET
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I agree, it probably would have just been a 3-4% down day if they didn't over react. Depending on where you may have bought things some stocks were actually even or up for the week. Now it will open 5% down and likely get worse before it gets better.
 
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