Financial market research and analysis

Central banks led by the US shot off a bazooka of lower interest rates and quantitative easing but it has missed target. Markets are back into freefall.  

Friday’s gains have evaporated and shares are headed deeper into bear market territory.

Bank shares are leading the market lower. The move to cut interest rates down to zero will compress lending margins just as the coronavirus will see the level of non-performing loans (NPLs) skyrocket.

US index futures have gone limit down 5% so it seems odds on we’ll have another NYSE circuit breaker to start the session -7%. The dollar fell in reaction to the new policies when trading started on Sunday but is rebounding as a haven. Crude oil is back at last week’s lows and gold hasn’t sustained a small initial move higher.

There’s an understanding in markets that a recession is almost guaranteed. Authorities throwing money at it helps but cannot stop it.

The Fed has cut US interest rates by 1% and started a $700 billion quantitative easing program of bond buybacks. A second emergency rate cut three days before the FOMC meeting smacks of desperation. It’s the same reaction we saw in markets to the first 0.5% cut. Presumably central bankers wished to appear assertive but they look impotent to the coronavirus scare.

The sustainability of monetary policies like these is a question for another day. For the here and now, low interest rates just don’t help the demand shock facing the global economy. The multi-week, country-wide lockdowns taking place from the largest European economies like France and Spain to some of the smallest like Cyprus is going to take a heavy toll. Company revenues will turn sharply lower, as will commodity and foreign currency demand.

The coordination among central banks is what markets are looking for from national governments. Markets were supported when the United States and Germany announced separate economic stimulus packages to fight the coronavirus. But before the Senate has even voted on the US bill, there is an admission that it’s not enough.

The weekend was just a stream of headlines that whole sections of society and the economy will come to a grinding halt. Airlines are suspending routes, sporting events are being cancelled, hotels are being shut and in some countries only essential private business will remain open. The worst case scenario for ways to contain the coronavirus keeps getting worse. Under that travel and leisure stocks will keep falling