Global Stocks Down Despite Feds Move; US Retail Closures to Surge
Global markets are trading down on Monday despite the efforts central banks are doing to contain the financial and economic hemorrhage. Wall Street hit "limit down" premarket, and "circuit breaker" right after the opening, while European stocks are at multi-year lows.
The Federal Reserve made a surprising move in the weekend to support liquidity to markets in the days ahead. Still, experts are skeptical about the decisions due to the lack of coordination between countries, central bankers, and politicians.
Just to put the numbers in context, Global stocks have lost $19T in value in only two months, and it looks to continue in the short term. Overall, traders watch the leadership panicking, so they are in a panic. It will stop when they see an efficient and well structured plan of action.
In that framework, dólar and gold are trading down, while the euro and US Treasuries are up.
Fed Cuts Rates And Launches QE to Provide Liquidity
CNBC chart on Federal Reserve’s Interest rate
On Sunday, the Federal Reserve announced an interest rate cut to zero and launched a new round of quantitative easing.
In a press release, the Fed said that despite "available economic data show that the US economy came into this challenging period on a strong footing," the coronavirus outbreak "disrupted economic activity in many countries, including the United States."
In the package, the Fed said the QE program would be $700 billion worth of assets purchases entailing Treasurys and mortgage-backed securities to support liquidity amid the coronavirus crisis. At the same time, it lowered the benchmark rate by 175 basis points to a window between 0-25%.
The action comes as a part of a coordinated central bank action to enhance provisions of US dollar liquidity, including the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank.
Wall Street on Circuit Breaker Motion
The US equities fell sharply on Monday as markets remain in turmoil despite central bank efforts. The S&P500 triggered a "circuit breaker" early in the session after dropping 8.14%. Global markets expect a brutal session in the United States.
Confidence about measures and coordinated health actions against the COVID seems to be the trigger of the situation, but also the lack of liquidity with people avoiding risk and flying to US bonds.
The fear now is where it is going to stop, and while the easy answer is at the moment the COIVD-19 comes under control, uncertainty could send indexes to multi-year lows.
In an interview with CNBC, Peter Tchir, Head of Macro Strategy at Academy Securities, was asked about the risk of markets going below financial and housing crisis levels in 2008. Tchir affirmed that he doesn't see that risk as "market is not leveraged in the same condition that it used to be in 2008."
In the years previous to the financial crisis, people were heavily invested in dirty assets that they had to get rid of and sell it quickly. "It is not happening right now."
What to See Right Now?
Retail stores are under pressure right now. Apple announced over the weekend that it would close all stores out of China because of the Coronavirus. It is just the beginning; the economic crisis related to the virus will hit main street people big. And that's why the Fed made its move.
The Fed just released a brief note saying that Federal banking agencies are encouraging banks to use the Federal Reserve discount window. "The discount window provides short-term loans to banks and plays an important role in supporting the liquidity and stability of the banking system."
It will support "the smooth flow of credit to households and businesses" to avoid actions that have negative consequences.
In that framework, Deborah Weinswig, CEO and founder of retail advisory and research firm Coresight Research, affirmed that the already ugly numbers of retail store closures in the United States seen in 2019 could be double in 2020 due to the virus.
2020 numbers are now in pace to be "double what we saw last year," said Weinswig, and there could be more than 15,000 store closures announced by retailers in 2020. "I think that is already in motion. If COVID-19 stays longer, it will be greater."
Finally, the German Economy Ministry said that "the strength and duration of the impact cannot yet reliably be forecast." However, Germany is preparing the country for an economic impact until at least the third quarter, even more.
Be patient, stay safe and wait for your moment in the market.
Mauricio is a newer member of the team and a very welcome addition. He is a financial journalist and trader with over ten years of experience in stocks, Forex, commodities, and cryptocurrencies. This experience means he has an excellent understanding of the markets and current events.