Updated: Jan 9, 2021
Fed’s massive rate cut to near 🆉🅴🆁🅾set a tumbling start of the week and boosted the risk-off market sentiment
🇺🇸 S&P 500: +9.32%📈
🇯🇵 Nikkei 225: -6.08%📉
🇪🇺 Stoxx 600: +1.44% 📈
🇭🇰 HSI Index: -1.14%📉
🇨🇳 CSI 300: -1.41% 📉
🇲🇾 FBM KLCI: -5.26%📉
🇲🇾 FBM Small Cap: -5.84%📉
(returns in MYR terms, data as of 13 March 2020)
• The Fed made an emergency rate cut to near zero and announced to increase its bond holdings by USD 700 billion on Monday morning, setting volatile start of the week to its equities market.
• Wall Street key indices rebounded around 9% on Friday as President Trump’s announcement of federal declaration reassured to step up in combating the COVID-19 outbreak.
• US 10-year Treasuries yield rose 17 basis points to 0.97% with signs of easing in credit markets while Dollar strengthened to its best week since 2008.
• Safe haven assets such as Gold took a heavy hit by a drop of around -3% and Japanese Yen also weakened -3.1% on Friday.
• Oil prices climbed 5% on Friday amid US’s plan in buying large quantity of oil for the nation’s strategic petroleum reserve (SPR).
• Malaysia’s January’s unemployment rate fell from 3.3% to 3.2% while Industrial Production also fell short of December’s figure (0.6% vs 1.3%) as dragged by manufacturing sector and to remain sluggish amid COVID-19 outbreak which impact the business outlook in near future.
• FBM KLCI closed -74.68 points (-5.26 %) lower on Friday following a major sell-off that wiped out RM73.23 billion worth of market capitalization amid the pandemic COVID-19 and oil price war which raised concerns to the global market.
💡 *Events Ahead:* 💡
• China to release its Industrial Production y/y, Fixed Asset Investment ytd/y, Retail Sales y/y* and Unemployment Rate on Monday.
• German will announce its ZEW Economic Sentiment on Tuesday.
• The US Retail Sales and Core Retail Sales m/m, Capacity Utilization Rate, Industrial Production m/m will be available on Tuesday.
• US will release Housing Starts and Building Permits on Wednesday.
• Investors are expecting US’s FOMC Economic Projections, Statement and Press Conference as well as Federal Funds Rate and Philly Fed Manufacturing Index on Thursday.
• Japan will announce its National Core CPI y/y, BOJ Police Rate and BOJ Press Conference on Thursday.
(thanks to iFast)
US Fed Cuts Rate To Near Zero and reinstate QE
So the US Federal Reserve emergency rate cut tells us 2 things:
1. US Fed *cuts* for a *full 1%* and official rates are now 0-0.25%
2. Fed will also intervene by buying USD 700bil of Treasuries & MBS a direct mode of providing liquidity to market players
This is QE4 in official sense.
With economies shutting down, companies will require cheap short term financing to tide over the cash flow issues thus staving off massive bankruptcies. The market expectation is Covid-19 threat will subside by summer.
The rebound which started last Friday will continue as market looks ahead.
If for some reasons the Covid-19 outbreak recur & intensify in late 2020 the market will respond accordingly.
Dear all, it feels like 2008 Déjà vu. I know.
While the virus is killing thousands of people, businesses are reeling and failing, companies are slashing earnings estimates and analysts are revising downwards growth forecasts. The markets are mirroring that.
But the market is not the economy. It surges and falls, and its movements are largely impossible to predict.
Against this backdrop, we reiterate our views in discovering opportunities within long-term capital growth avenues (Asia ex Japan and Emerging Markets, particularly Chinese equities).
Risk assets aside, keep up the hunt for capital preservation is equally important to build a balanced portfolio and seek for risk-adjusted return, is what you should do especially when the global economy is facing an inflection point.
(From: Sherman, iFAST Investment Consultant Team)
(All Photos Illustration posted by R2 Impeccable)