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A Turnaround Tuesday. Major indices close higher.

6% gains for S&P and Nasdaq.

It is a Turnaround Tuesday for the major US stock indices.

The summary of what was a wild swing day is showing:
  • The S&P index rose 142.88 points or 5.99% to 2529.01. The low reached 2367.04. The high was up at 2553.93
  • The Nasdaq index rose 430.189 points or 6.23% to 7334.78. The low reached 6828.91. The high moved up to 7406.23
  • The Dow rose 1049.27 points or +5.2% to 21237.79. The low reached 19882.26. The high reached 21379.35
In the last hour of trading, their was what has been more typical volatility.  Below is the summary of the changes. Not only did stocks move higher, but the US 10 year yield moved up by 5 basis points.
6% gains for S&P and Nasdaq.
Although off the highs the major US indices are ending the day well off the lows.
Major indices close higher

Federal Reserve acts on a Sunday evening to slash rates to near zero

Federal Open Market Committee

  • cut interest rates for the second time in less than two weeks
  • emergency move
  • “The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range
  • The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals”
Headlines via Reuters:
  • fed cuts interest rates to near zero in response to coronavirus crisis, risks to economic outlook
  • says expects target interest rate will remain in range of 0 and 0.25% until economy has “weathered recent events” and is on track to meet inflation and employment goals
  • says crisis has “harmed communities and disrupted economic activity” in u.s. and other countries, will weigh on activity in the near term
  • says will use “full range of tools” to support economy, will expand holdings of treasury securities by $500 bln and mortgage backed securities by $200 bln in coming months
  • vote on policy action was 9 to 1, with Cleveland fed president Loretta Mester preferring a smaller interest rate cut
  • Fed announces coordinated action with bank of Canada, bank of England, bank of Japan, European central bank and Wwiss national bank
  • Fed says six global central banks have agreed to lower pricing on u.s. dollar liquidity swap arrangements by 25 bps
  • says changes to central bank swap lines will take effect week of march 16
  • Fed and other global central banks will begin offering u.s. dollar liquidity in each jurisdiction with 84-day maturity
  • Fed says it will lower the primary credit rate by 150 basis points to 0.25 percent, effective march 16
  • Fed says it supports firms that choose to use their capital and liquidity buffers to lend and undertake other supportive actions in a safe and sound manner
  • says that depository institutions may borrow from the discount window for periods as long as 90 days, prepayable and renewable by the borrower on a daily basis
  • says reducing reserve requirement ratios to zero percent effective on march 26
  • says encourages depository institutions to utilize intraday credit extended by reserve banks, on both a collateralized and uncollateralized basis

US stocks go out at the lows. The Dow tumbles 10%

NASDAQ and S&P index fall over 9.4%

The US stocks are going out at the lows and down sharply after the markets were not impressed with the President’s address to the nation and the headlines continue to point to slower growth.  The US sporting events are shutting down. The number of infected and deaths continued to grow in Europe.  A massive liquidity add by the Fed could not help.
The final numbers are showing:
  • S&P index -260.6 points or -9.51% at 2480.78
  • NASDAQ index -750.25 points or -9.43% at 7201.80
  • Dow industrial average -2352.33 points or -9.99% at 21200.85.

The changes in major stock marketsYear to date numbers are showing:

  • Dow, -25.71%
  • S&P, -23.22%
  • Nasdaq, -19.74%
  • Canada S&P/TSX index -26.69%
  • Euro Stoxx 50, -32.04%
  • UK FTSE 100 -30.56%
  • German DAX, -30.85%
  • France’s CAC, -32.35%
  • Japan’s new guy, -21.55%
  • Hong Kong’s Hang Seng -13.77%
  • Australia’s S&P/ASX 200, -20 64%
There is nothing good coming out the stock market.

Year to

Japan finance minister Aso was asked about the potential for intervention in yen

In response, Aso said that while he had no comment on volatility in the FX market he will respond appropriately depending on market conditions

In Japan intervention in the currency market is directed by the Ministry of Finance. The bojj Bank of Japan will take the necessary steps in the market, but the directive comes from the Ministry. This is not the case in most other DM central banks, where intervention decisions are taken by the central bank itself (there is often consolation with the relevant government department of course).
In response, Aso said that while he had no comment on volatility in the FX market he will respond appropriately depending on market conditions

US stocks suffer worst day since 2008

Closing levels for the main US indexes

Closing levels for the main US indexes
US stocks fell to fresh session lows of 8% late in the day but staged a small bounce late in the day to finish at slightly better levels.
Nonetheless, it was the worst day for US stock markets since 2008 and possibly the worst day ever for oil stocks.
Here is the damage:
  • S&P 500 -7.6% — a 226 point decline to 2746
  • DJIA a 7.8% decline or -2015 points to 23,849
  • Nasdaq -625 points to 7950 — a 7.3% decline
  • Toronto TSX -9.3%
These headlines all sound terrible and this was the worst day for US stocks since December 2008 but when you consider that we’re only back to the June lows, it doesn’t seem that bad. A fall to the 2018 lows would be a decline of 31%.

European major indices end their nightmare of a day

Major indices down over 7%

The European stock markets are now close for the day and the nightmare is over.  The major indices all closed over 7% lower.   For the year the declines are near the -20% level. Ouch.
The provisional closes for the major indices are showing:
  • German DAX, -7.4%
  • France’s CAC, -7.9%
  • UK’s FTSE 100, -7.3%
  • Spain’s Ibex, -8.1%
  • Italy’s FTSE MIB, -11.1%
For the trading year, the provisional changes are showing
  • German DAX, -19.8%
  • France’s CAC, -20.67%
  • UK’s FTSE 100, -20.3%
  • Spain’s Ibex, -18.9%
  • Italy’s FTSE MIB, -20.3%
In other markets as London/European traders look to exit:
  • spot gold is down $6.20 or -0.37% at $1667
  • WTI crude oil futures are down $8 or -19.43% at $33.26
In the US stock market:
  • S&P index is down -169 points or -5.7% the 2802
  • NASDAQ index is down -425 points or 4.98% at 8148
  • Dow is down -1600 points or -6.2% at 24263
In the US debt market yields remain sharply lower.
Major indices down over 7%_

Fed increases sizes of overnight, term repo operations

The Fed just hiked the amount offered in its repo operations

The statement via the NY Fed:

“The Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York has updated the current monthly schedule of repurchase agreement (repo) operations.

Beginning with today’s operation and through March 12, 2020, the Desk will increase the amount offered in daily overnight repo operations from at least $100 billion to at least $150 billion. In addition, the Desk will increase the amount offered in the two-week term repo operations on Tuesday, March 10, 2020 and Thursday, March 12, 2020 from at least $20 billion to at least $45 billion.”

You can check out the other smaller details here. Not QE they said. Things will go back to normal soon enough they said. Look where are we now.

Morgan Stanley expects FOMC to cut 75bps(50 on March 18, 25 in April)

Morgan Stanley has slashed their US 2020 GDP growth forecast to 1.5%

  • from 1.8% previously

Projections for the Fed:

  • 50 bps rate cut in March
  • 25bps in April

MS add that if recession:

  • Fed to cut to zero
  • & restart QE
PS. I am seeing (again) the ‘central bank rate cut is ineffective therefore they won’t and we need fiscal stimulus instead’ comments.
This is, unfortunately, a very common mistake that is made.
I posted this ahead of the RBA meeting last week (before the RBA cut its cash rate) , just change around the names:
  • Some folks will argue rate cuts will be ineffective against the virus, which is the wrong argument, of course rate cuts won’t cure a virus! Sheesh. The central bank move, if it comes,  will be predicated on taking action to avert too much economic harm. Some folks will argue that a rate cut will be ineffective for this, that government stimulus (fiscal) would be better, and they have a fair point … but you have to remember a rate cut is the tool available to the central bank, they can’t provide fiscal stimulus. “The RBA should stand firm and force the government to act” is another argument. Unfortunately this is no time for dick swinging contests (its a male-dominated sphere) and the RBA will not play this game.

Late rally takes some of the sting away from the sharp declines today

Rate cut hopes into the weekend helps erase some of the declines on the day.

A late rally has taken some of the sting away from the sharp decline today in US stocks. The Dow industrial average was down close to 894 points an hour before the close. The index is still down around -250 points but well off those low levels.
The final numbers are showing:
  • The S&P index -51.46 points or -1.7% at 2972.46. The index was down over -4% at its lows. So the late day rally erased a lot of those declines.
  • The NASDAQ index is closing down -1.87% or 162.97 points at 8576.61. The low for the day reached 8375.13. The high reached 8612.359. At the low, the index was down -4.16%
  • The Dow industrial average is closing down -255.69 points or -0.98% at 25865.59. The low price reached 25226.62. The high price extended to 25994.38. At the session low the Dow was down -894 points or -3.43%.
Rate cut hopes into the weekend helps erase some of the declines on the day.

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Another sharp day down in the major US indices

Yields fall to new lows

The risk off flows continued in the US stock market and debt market.
The Dow industrial average was down over 1000 points at 1 point during the day. The S&P index fell below the 3000 level briefly before rebounding in the last hour of trading.
In the US debt market yields resumed their downward bias after yesterdays modest rebound.
The final numbers for the major indices are showing:
  • S&P index -106.18 points or -3.39% at 3023.94. The low price extended to 2999.83. The high was up at 3083.04
  • NASDAQ index fell -279.49 points or -3.10% at 8738.59. The low price reached 8677.387. The high price extended to 8921.078
  • Dow industrial average fell minus this 969.58 points or -3.58% at 26121.28. The low price extended to 25943.33. The high price reached 26671.92
In the US debt market the 10 year yield fell to a new record low level of 0.898%. It is currently trading at 0.91%. That is still down -14.2 basis points on the day. The yield curve flattening a bit to 32.49 basis points from close to 36 basis points the close yesterday, but all maturity levels fell by over -10 basis points.

US yields tumbled lower