What’s Next after FED Cut Rates?
On the U.S. market hours dated 3 March, the Federal Reserve Chief announced a rate cut by 50 basis points in wake of coronavirus slowdown. Despite the effort to push Dow benchmark higher, the world largest market by value plunged and closed 785 points lower at the end of day.
Since late February, the fearful spread of contagious covid-19 moved into Italy and France, with the growing phobia of engulfing most part of Europe now. Now, the virus has gone into South Korea and Iran as the immediate largest infecting countries outside China. In U.S. economy, there are 124 confirmed cases and death toll at 9 deceased (dated 3 March).
The contagion virus has really panicked many country leaders. Finally, people begin to understand there is no exception of such attack when come to nation, geo-borders, culture and religions. The volatility and bearish sentiment in stock markets has shot off in U.S. Dow Jones market by a recent almost 5000 points plunge, to European and Asian markets without compromise!
On the evening (ASIA hours) of 3 March, FED chief Powell announced a rate cut by 50 basis points and surprised the market. In fact, most traders are waiting for the FOMC meeting on 17 March to expect such slash without anticipating it to come so soon!
Over past 12 months, Powell has been pressured by President Trump to cut rates in order to propel the U.S. equity markets but sandwiched in-between other disagreeing parties. As the U.S. economy is deepening into government debt and tapering programs incomplete since 2016, Powell has been stuck in difficult position to call for lower rates that might hamper future growth.
But now, it seems that the whole nation is focusing on the deadly effect of covid-19 attack and the looming downfall of 5000 points plunge in just market 10 days. Therefore, Powell has become bold enough to go for a double degree rate cut that no one will question him anymore. By now, the Dow market has extended another 1000 points lower last week and traders begin to anticipate if there will be more easing after the FOMC meeting.
In March, we are expecting a wild whipsaw in market due to the non-farm payroll on 6 March and subsequent FOMC action on 17 March. Now, the Dow market has plummeted even after the 50 basis points cut and it seems that we might need something else to serve as its adrenaline.
At the beginning of last week, President Trump has said he will consider payroll tax cut to combat the coronavirus. The man has lost his patience and is going to do whatever it takes to prevent the American market from downing further.
While many traders are very keen in fishing the bottom for recovery, we foresee the trend will be very volatile till month end. Though we also predict the sharp recovery will come and could potentially bag for a fast profit, we need to exercise more patience in waiting for the school of fish to come into our net!
~ DAR Wong is a veteran and licensed professional in global financial market. The opinions are solely at his own. He can be reached at firstname.lastname@example.org
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