On the US market hours dated March 3, the Federal Reserve announced a rate cut by 50 basis points in wake of coronavirus slowdown. Despite the effort to push Dow Jones benchmark higher, the world’s largest market by value plunged, closing 785 points lower at the end of the day.
Since late February, the fearful spread of contagious Covid-19 moved into Italy and France, with the growing phobia engulfing most part of Europe. Now, the virus has spread to South Korea and Iran as the immediate largest infecting countries outside China. In the US, there are 124 confirmed cases and death toll at 9 deceased as of time of writing.
The contagion has caused many country leaders to panic. Finally, people begin to understand there is no exception of such attack when come to nation, geo-borders, culture and religions. The volatility and bearish sentiment in stock markets has shot off in US Dow Jones market by a recent almost 5,000 points plunge, to European and Asian markets without compromise!
On the evening (ASIA hours) of March 3, Fed chief Jerome Powell announced a rate cut by 50 basis points and surprised the market. In fact, most traders are waiting for the FOMC meeting on March 17 to expect such slash without anticipating it to come so soon!
Over the past 12 months, Powell has been pressured by US President Donald Trump to cut rates in order to propel the US equity markets but sandwiched in-between other disagreeing parties. As the US economy is getting deeper into government debt and tapering programs incomplete since 2016, Powell has been stuck in difficult position to call for lower rates that might hamper future growth.
But now, it seems that the whole nation is focusing on the deadly effect of covid-19 attack and the looming downfall of 5000 points plunge in just market 10 days. Therefore, Powell has become bold enough to go for a double degree rate cut that no one will question him anymore. By now, the Dow market has extended another 1000 points lower last week and traders begin to anticipate if there will be more easing after the FOMC meeting.
In March, we are expecting a wild whipsaw in market due to the non-farm payroll on 6 March and subsequent FOMC action on March 17. Now, the Dow market has plummeted even after the 50 basis points cut and it seems that we might need something else to serve as its adrenaline.
At the beginning of last week, Trump has said he will consider payroll tax cut to combat the coronavirus. The man has lost his patience and is going to do whatever it takes to prevent the American market from downing further.
While many traders are very keen in fishing the bottom for recovery, we foresee the trend will be very volatile till month end. Though we also predict the sharp recovery will come and could potentially bag for a fast profit, we need to exercise more patience in waiting for the school of fish to come into our net!
Dar Wong is a veteran and licensed professional in global financial market. The opinions are solely at his own. He can be reached at [email protected].