By Eliman Dambell
Sunday evenings 10PM (GMT) are usually the time where we see major news announced prior to the Asian and Foreign Exchange markets open. This Sunday saw the US Federal Reserve announce they will be cutting rates for the second time in the last 2 weeks. With Interest rates now at 0%, which is the lowest in the history of the United States. With that you would think that would be the end of it. Sadly no, with COVID-19 infections in the US now at over 3000, both the Government and Central Bank have been scrambling in search of answers to stop the spread, and the panic that the spread is adding to markets. In addition to the cut in rates it was also announced that the FED will be restarting it’s asset purchasing program, better known as Quantitative Easing , with $700b available.
How did markets react?
What now feels like a century ago, 2 weeks prior we saw markets react with panic when the FED announced that they were exercising an emergency cutting of rates for the first time since 2008. Ultimately we saw a repeat of this reaction in the hours that preceded Sunday’s announcement. Most major US indices fell close to 5% in futures markets. These include the 3 major indices, SP500, NASDAQ and DOW Futures.
What now many are waiting for is the reopening of the spot markets to see if the panic we saw in futures will reflect. Many believe we may see a continuation of the panic with the potential for a 13% correction being hit. This figure is key as this will automatically trigger what is known as a “limit down” order. A limit down essentially is where a market ceases trading due to losses reaching a level where the exchange deems chaotic enough to halt trading. There is usually a pause of activity for a few minutes, before resuming activity. In the last few weeks, we have seen several of these orders executed in the US, and with the latest news, we may see many more in the upcoming days and weeks.
From a political perspective, we saw President Trump announce that the US would be entering a state of emergency. This means that flights into the country will be extremely limited, with the UK and Ireland joining all other European countries in being banned from flying into the States. In addition to this it was announced that “social distancing” will be the new norm as certain industries were to be closed to help halt the spread of the virus. These include sporting arenas, Cinemas, Restaurants and Bars.
This action comes as the US faced criticism for what many saw as a slow acceptance of the severity of the Coronavirus crisis. Now the question seems not to be whether or not the powers that be will take the issue seriously. However, how far will they decide to go to find potential solutions to the biggest threat to global health in a generation.