The Federal Reserve unveiled a significant stimulus package on Sunday, including a rate cut and the restarting of quantitative easing in reaction to the economic slow down caused by COVID-19.
The Fed announced it would cut rates by 100 bps to 0.00%-0.25% and would begin asset purchases of $700 billion.
Just a couple of weeks ago such a large stimulus package would have unleashed a wave of buying throughout markets, but with a back drop of coronavirus induced fear, markets sank overnight.
European markets opened on Monday deep in the red with many markets facing issues with price matching in initial trade. The FTSE 100 was down over 5%, as were the German DAX and French CAC 40.
Futures in the S&P 500 and Dow Jones triggered circuit breakers overnight while Asian sank.
The drop in equities was attributed to scepticism around the Federal Reserves motives and whether the package would actually provide any reprieve for the real economy.
Powell basically admitting that the volatility and drop in stock markets is causing them to act the way just did.
It’s all about the stock market and calming things down.
So far it’s not working. At all.
— Sven Henrich (@NorthmanTrader) March 15, 2020
There is also a concerns growing that the Federal Reserve has spent all of its monetary policy ammunition and has very little it can now do if economic conditions deteriorate further.
Global rate cuts
The Federal Reserve were joined by a raft of other central banks in cutting rates to help ease stress on financial systems.
The Bank of Canada cut rates by 50 bps to 0.75% while the Reserve Bank of New Zealand lowered by 75bps to 0.25%.
The Bank of Japan decided to keep rates on hold but instead opted to increase purchases of ETFS and J-REITS. This type of security buying is a much speculated next step for the Fed if the most recent package fails.
Airlines & Travel shares destroyed
Airline shares were again amongst the most heavily stocks as flights were grounded by government attempting to limit move to contain corona virus.
easyJet was down over 20% to levels that had not been seen since 2012, Air France, IAG and Lufthansa were also heavily hit.
Shares in Tui travel sank as much as 34% after it said it may have to seek state aid to survive. Other airlines have said that if things don’t improve by May they also face bankruptcy.
