Tuesday, March 3, 2020

Market update: Fed cuts rates by 0.50% to blunt coronavirus impact (3 March 2020)

Federal Reserve announces "surprise" 50 basis points cut in target range for federal funds rate to 1.00% to 1.25%, citing evolving risks to economic outlook posed by the coronavirus.
  • The surprise 50 basis point cut came with commentary highlighting the limits of monetary policy, and Wall Street indexes fell sharply, gold surged and the dollar sank. 
  • The yield on benchmark 10-year U.S. Treasuries, which falls when prices rise, hit a once unimaginable low of 0.9060%.
The Fed cut failed to lift confidence. Wall Street tumbled in a volatile session on Tuesday, amplifying fears about the magnitude of the coronavirus’ impact on the economy.

All three major U.S. stock market indexes closed nearly 3% lower after the Fed’s first emergency rate cut since the 2008 financial crisis.

The rate reduction underscored the U.S. central bank’s concern about the new coronavirus, which has spread around the world after emerging late last year in China. It came two weeks ahead of a scheduled policy meeting, where traders had fully priced in a 50-basis-point cut.

Stocks had initially jumped more than 1%, but then dropped as traders worried whether pumping more money into financial markets would address the central problem - a drop in business activity as workers and consumers stay home.

The 10-year Treasury yield fell below 1% for the first time ever as nervous investors moved money out of the stock market.

The S&P financials index tumbled 3.7%, reflecting banks’ difficulty in making profits in low-interest rate environments.

Nasdaq Composite -3.2% YTD
S&P 500 -7.0% YTD
Dow Jones Industrial Average -9.2% YTD
Russell 2000 -10.9% YTD

No comments:

Post a Comment