(24 March 2020)DAILY MARKET BRIEF 1: Equities rebound on Fed’s unlimited asset purchases.

Another surprise Federal Reserve (Fed) intervention yesterday helped curbing losses in New York, but the S&P500 and the Dow closed the day circa 3% lower, and Nasdaq was flat. Investors have their hopes tied to the $2-trillion rescue package that needs to get signed by the Congress, yet apparently there are controversies among policymakers on how to spend this money. House Speaker Nancy Pelosi says the help is destined to corporations first, not workers and their families. While spending on climate change related issues are said to pull politicians apart and prevent the deal from getting signed. Yet a delayed deal is damaging for both parties, especially now that the coronavirus-induced lockdowns accelerate across the United States as well.

That’s what the Fed is there for. The Fed pulled out the heavy artillery even before the Congress failed to find a midway and announced a second wave of massive monetary support on Monday, including unlimited Treasury and mortgage-backed securities purchases to set the market’s mind at rest. The Fed announcement couldn’t ease the selling pressure across equities, corporate and mortgage bonds at first, but the US equity futures were better bid in the overnight trading session as leading Asian indices applauded the Fed’s efforts. Nikkei and ASX 200 jumped past 5%, as WTI crude tested the $25 offers. Activity on FTSE futures (+3.96%) hint at gains in London as well.

How long this optimism would last is yet to be seen.

Markets are going down the rabbit hole and the financial dimension of the coronavirus crisis has gotten to a level where we might see a worldwide economic recession that is worst than the one we experienced following the 2007-2008 breakdown.

If we zoom into data, the preliminary PMI figures showed that manufacturing in Australia held up at 50.1 in March, but services PMI took a heavy hit, falling below 40 from 49.0 printed a month earlier. Australia considers draconian second stage lockdown measures, meaning that the numbers we see here are about to get worse.

Manufacturing activity in Japan slowed significantly from 47.8 to 44.8 as well but beat analyst expectations of 42.1.

By Ipek Ozkardeskaya