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Market Insights & Strategy S Market Insights & Morning news summary Strategy Global News Global Markets Fed cuts half point in emergency move amid spreading virus; th 4 March 2020 10-year US yield plunges below 1% for first time in 150 years: The US Federal Reserve slashed interest rates by half a percentage point in the first such emergency move since the 2008 financial crisis, amid mounting concern that the coronavirus outbreak threatens to stall the record US economic expansion. The rate cut, which came between the central bank’s regularly scheduled meetings, was announced hours after Group of Seven finance chiefs held a rare teleconference to pledge they’d do all they can to combat the fast-moving health crisis. “My colleagues and I took this action to help the US economy keep strong in the face of new risks to the economic outlook,” Fed Chairman Jerome Powell said in a press conference on Tuesday. “The spread of the coronavirus has brought new challenges and risks.” The vote for the rate cut to a range of 1% to 1.25% was unanimous even though the Fed said in a statement that the “fundamentals of the US economy remain strong.” Powell left the door open to further action by the central bank at its next scheduled meeting March 17-18. “In the weeks and months ahead we will continue to closely monitor developments,” he said. “The virus and the measures that are being taken to contain it will surely weigh on economic activity, both here and abroad, for some time,” Powell said The Fed chief acknowledged that the Fed doesn’t have all the answers, adding that it would take a multi-faceted response from governments, health care professionals, central bankers and others to stem the human and economic damage. “We do recognize a rate cut will not reduce the rate of infection, it won’t fix a broken supply chain. We get that,” Powell said. “But we do believe that our action will provide a meaningful boost to the economy.” Investors weren’t impressed weren’t impressed by either the G-7 promise or the Fed’s move. Traders are betting that the Fed will have to do more, with the futures markets pricing additional easing later this year. Following the Fed’s emergency cut, the 10-year Treasury yield dropped below 1% and last traded at 0.9604%. A Bloomberg article said, according to historical work by Robert Shiller, the Nobel laureate economist at Yale University who has reconstructed the 10- year interest rates available in the US back to 1871, it has never Rakesh Sahu before dropped this low. Many momentous events have shaken the Director, Market Insights & Strategy US since Ulysses S. Grant’s presidency, but none of them were sufficient to drive long-term money down to such cheap levels. Chavan Bhogaita Source: Bloomberg Managing Director & Head of Market Insights & Strategy China's central bank keeps short-term rates stead; major central banks say stand ready to support economy: China’s central bank Please click here to view our recent kept short-term borrowing costs steady on Wednesday, shrugging off publications on MENA and Global Markets the US Federal Reserve’s emergency policy rate cut overnight. The People’s Bank of China (PBOC) skipped open market operations, it said in a statement on the website, leaving reverse repurchase agreements unchanged. A Reuters article said markets however widely believe the authorities will continue to move to lower financing People’s Bank of China (PBOC) skipped open market operations, it said in a statement on the website, leaving reverse repurchase agreements unchanged. A Reuters article said markets however widely believe the authorities will continue to move to lower financing costs for business and roll out powerful measures prop up the economy, which has been hit by a coronavirus outbreak. Major economies have kicked off a new round of easing globally to combat disruption to economic growth from the virus epidemic, which was first detected in China, has now spread beyond to some 80 nations and could turn into a pandemic. Central banks in Australia and Malaysia cut rates on Tuesday and on Monday the Bank of Japan took steps to provide liquidity to stabilise financial markets there. The Hong Kong Monetary Authority followed the Fed and lowered its base rate to 1.50% from 2.00%. South Korea has unveiled a $9.8bn extra budget to help businesses hit by the outbreak. The European Central Bank policymaker Francois Villeroy de Galhau said Tuesday that the central bank is ready to support the economy in the face of the coronavirus outbreak, but governments with budget leeway also need to help. Villeroy, who is also head of the French central bank, told Dutch newspaper De Telegraaf that the ECB’s monetary policy was already accommodative and helping to stablise the euro zone economy. The ECB’s regular refinancing operations and ultra-cheap long-term loans to banks were helping them in turn to lend to companies running into trouble because of the virus outbreak, he said. “If necessary, we would stand ready to take appropriate and targeted measures, taking into account the liquidity needs of banks and businesses,” Villeroy said, echoing comments from ECB President Christine Lagarde. Bank of England Governor Mark Carney said on Tuesday policymakers around the world are working on a “powerful and timely” response to the economic hit from coronavirus. “The lines of communication globally between central banks are wide open,” Carney told lawmakers on Tuesday. “It is reasonable to expect a response that reflects a combination of fiscal measures and central bank initiatives.” “We are confident that collectively these measures both within jurisdiction and across jurisdictions will be both powerful and timely,” he said. Carney declined to comment when asked if the BoE’s Monetary Policy Committee might cut interest rates before March 26 when it is due to announce the outcome of its next meeting. “The committee will make a decision at the appropriate time but not before,” he said. Singapore’s Trade and Industry Minister Chan Chun Sing said it’ll take more than an interest rate cut by the Federal Reserve to boost sentiment in the global economy amid a spreading coronavirus outbreak. “It takes more than just a Fed cut to restore the confidence because people must see and feel for themselves the confidence in how governments are handling this in a coherent way,” Chan said in an interview Wednesday with Bloomberg. “I’m not sure that I would characterize it as a panic but I think many central banks in the world would want to work together to try to restore confidence in the current situation,” Chan said. It’s “too early to say” if the global economy will plunge into recession, Chan said, although there’s growing concern the recovery will be U-shaped, or L-shaped, implying a more protracted rebound. Source: Reuters; Bloomberg WHO says Coronavirus global fatality rate is higher at 3.4%; Mainland China reports 119 new coronavirus cases, down from day earlier: The head of the World Health Organization said the novel coronavirus doesn’t transmit as efficiently as influenza but the fatality rate is higher at 3.4%. Total infections globally rose above 93,000. Coronavirus fatalities in the US rose to nine. Infections rose in South Korea and Iran, where more officials were diagnosed. Mainland China had 119 new confirmed cases of coronavirus on Tuesday, the country’s National Health Commission said on Wednesday, down slightly from 125 on the previous day. The total number of cases on the mainland has now reached 80,270. The number of deaths rose by 38 to bring the total mainland China death toll to 2,981 by March 3. Hubei, the epicenter of the outbreak, reported 37 new deaths and 115 new cases on Tuesday. Source: Bloomberg US futures rise amid election results; Asian shares struggle for traction; oil extends rally after OPEC+ experts suggest deeper output cuts: US stock futures rebounded after Tuesday’s sharp decline as investors took in early Super Tuesday election results alongside the Federal Reserve’s 2 emergency interest-rate cut. Treasuries pared gains. Early wins by Joe Biden lessened the chance of the Bernie Sanders nomination that had unsettled some investors. Futures on the S&P 500 rose 1.05% after the index tumbled 2.8% overnight in wake of an emergency 50 basis-point Fed move that failed to ease concerns about an economic downturn. Asian stocks were volatile as declines in Australia offset gains in South Korea, while Japanese, Chinese and Hong Kong shares fluctuated. Japan's Nikkei 225, which opened around 1% lower, last traded 0.4% higher at 8:10 am Abu Dhabi time. China’s blue-chip CSI 300 index and Hong Kong’s Hang Seng were flat in fluctuating trade. South Korea’s Kospi index added 2.0%, and Australia’s S&P/ASX 200 index fell 1.9%. Oil’s rebound extended into a third day after OPEC+ experts recommended deeper production cuts to combat the demand hit from the coronavirus before the group meets later this week. The Joint Technical Committee suggested an additional output reduction of 600,000 to 1 million barrels a day during the second quarter, Bloomberg reported citing according to delegates. Ministerial meetings are scheduled for Thursday and Friday in Vienna. WTI crude futures rose 70 cents, or 1.5%, to $47.87 a barrel on the New York Mercantile Exchange. The contract has advanced around 7% since Friday after plunging 16% last week. Brent futures increased 1.4% or 73 cents to $52.59 a barrel on the ICE Futures Europe exchange.
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