Capital Markets: "Equities Trade Higher, While Yields Continue to Fall"

From Marc to Market:

Overview: The G7 delivered up a nothing burger than was shortly followed by a 50 bp Fed cut. The equity market seemed to enjoy it briefly and extended Monday's dramatic gains, before falling out of bed. The S&P 500 lost about 2.2%, while the Dow Industrial slumped 3%, but shortly after the markets closed, equities began recovering, and the recovery carried over to the Asia Pacific region and Europe. Although a few markets fell (Hong Kong, Australia, and India), the MSCI Asia Pacific Index extended its recovery into the third session. The same is true of Europe's Dow Jones Stoxx 600, which is up about 1.3% near midday in Europe. US shares are recovering, and indications point to a nearly 2% opening gain in the S&P 500. Bond yields have tumbled after the US 10-year broke below 1.0%, and the 30-year Treasury yield fell to nearly 1.5%, and the global bond market rally continues, and European peripheral bonds are participating. All of the major currencies but the Canadian dollar gained against the greenback yesterday, but today, the dollar-bloc and Swiss franc are leading the move against the greenback. However, the euro is little changed, and the yen and sterling are around 0.25%-0.30% lower. After falling every day last week, the JP Morgan Emerging Market Currency Index is edging higher today for the third consecutive advance. Gold is shaving yesterday's more than $50 gain, and April WTI is higher for the third session but is inside yesterday's range.....

*****

....America
Could it be as simple as the "buy the rumor" of a Fed cut on Monday and "sell the fact" when it was delivered Tuesday? What makes this situation more complicated is that the market quickly understood the unusual inter-meeting move as in addition to not instead of a move at the March 17-18 FOMC meeting. The fed funds market has fully discounted a 25 bp move and is pricing in better than a two-in-three chance of a 50 bp move. Powell's assessment that the coronavirus may weigh on activity for "some time" also is consistent with easier policy. The Fed Chair also addressed some critics head-on. He acknowledged that the rate cut will not reduce the rate of infection or fix broken supply chains. Nevertheless, in a unanimous decision, the FOMC delivered the emergency rate cut. even though the "fundamentals remain strong" to provide "a meaningful boost to the economy." The Fed's aggressiveness stems from officials' assessment of the risks. Those risks that impelled it to act are the same ones that compel investors to reduce exposure....

....MUCH MORE