Yesterday, the US Federal Reserve cut rates by a full 100 basis points, bringing the interest rate down to almost 0%. The interest rate for the US Dollar is now officially 0.25%, but is effectively zero.
In addition to this, the Fed also announced a $700 billion quantitative easing program. This is comprised of at least $500 billion in US Treasury securities, as well as another $200 billion in government mortgage-backed securities.
Both of these measures were unprecedented moves, drastic measures taken in an attempt to ease the current economic panic and stop the massive selloffs being made.
However, they did almost nothing to ease investors’ fears, as trading was temporarily halted for the second time in recent weeks on the market open, after stock indices immediately crashed. The circuit breakers that trigger after indices fall below a certain percentage were automatically activated again as the markets dropped over 7% upon opening.
The Dow Jones suffered its worst single trading day in history in terms of points drop, losing 3000 points. In terms of percentage loss it is now the second worst, at 13%. It is now rapidly approaching the 20,000 point mark, an almost 10,000 point drop for the month.
By reducing the interest rate to 0%, the Fed is incentivising spending as holding onto cash no longer generates interest. But despite this tremendous effort to bolster the economy investors recognised that it will still not have much of an impact. No matter how much incentive the Fed gives people to spend money, there is still ultimately little they can do if people are unable to actually go out and spend money, if they’re being asked to stay at home.
In fact, this move may have made investors panic more, as it is the largest set of single day moves the Fed has ever taken, and was taken ahead of the market open, instead of during its regular meeting on Tuesday and Wednesday. Investors are even pulling out of gold, the traditional safe haven asset.
As stricter measures continue to be introduced to stop the spread of the virus, this situation will only become worse as well, as people begin to prepare for a new life under quarantine.
Apart from self-isolation, social distancing is now being championed as the best way to stop the spread of the coronavirus. This is defined by staying outside of spitting distance of other people, and avoiding all non-essential contact. Also included in that are such measures as working from home, avoiding large gatherings, and not traveling unless absolutely necessary.
Many countries have closed now their borders, such as Canada, which is now stopping all foreign travellers from entering the country.
New Zealand has also introduced some of the strictest measures, requiring all travellers into the country to self-isolate for 14 days upon arrival. Prime Minister Jacinda Ardern has also called for all gatherings of 500 or more people to be cancelled, either indoors or outdoors.
For more information, check out our chart analysis on the Dow Jones by Anish Lal here at BlackBull Markets, and follow us on Instagram and Twitter at blackbull_markets and @blackbullforex, respectively.