Monday, 02 March, 2020
Terry McCrann: Our softer fall cushioned by US Fed’s promise to cut interest rates
Fed chairman Jerome Powell is jumping at shadows and feeding the greedy with his signal on interest rates. On Tuesday our RBA will make its call, but it won’t be just to keep the punters happy, writes Terry McCrann.
Terry McCrann, Herald Sun
March 2, 2020 10:00pm
Current Time 0:00
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If the coronavirus continues to wreak havoc on the stock market, the US Federal Reserve will have to “step in” and boost liquity, according to former Trump spokesman…
Ah, the Fed — you gotta, well, not love but rather understand them. Wall St only has to demand and the Fed will always deliver — free money.
The greediest and dumbest guys in the room throw a tantrum: last week’s 12 per cent-plus US$4 trillion ($6 trillion) share market plunge. And the Fed rushes to promise it will slash interest rates and restart money printing.
That’s the short explanation of what happened on Monday, when our market was heading for yet another 180-point or so fall, before suddenly doing a U-turn and ending the day down just 50 points.
Indeed, if there’d be another hour of trading it might even have finished in the black. Nothing to do with anything local, such as Tuesday’s coming Reserve Bank rate decision.
It was all down to US futures turning sharply positive — pointing where Wall St would likely open the week overnight.
Federal Reserve chairman Jerome Powell. Picture: AP
All of Asia was — mostly, mildly — positive. Except for Shanghai which jumped more than 3 per cent.
Extraordinary; the guys that gave the world the virus are the only major market in the entire world which is still — after Monday, just slightly — positive over the past month.
After Asia closed and ahead of Europe, Wall St futures went even stronger — pointing to the Dow opening up around 500 points. That would recover all of Friday’s 357 point loss.
We shall have to see. Anything can of, course, happen through a day in such a febrile environment.
On Friday, Wall St had been heading for its fourth 1000-point or near 1000-point loss for the week, when Fed chairman Jerome Powell put out his “how much do you want and where do we sign” statement.
That instantly recovered 700 or so points and over $1 trillion for US share values.
Then, the general expectation among Wall St traders and, for want of a better word, experts developed that the Fed would follow through with a 50-point rate cut at its next meeting in two weeks and do something with money printing. We shall, again, have to see. It could just be the greed talking. But the greedy can “make it happen” by throwing another tantrum running down to that meeting if the Fed looks like backing off.
The Reserve Bank, led by governor Philip Lowe, meets on Tuesday. Picture: AAP
Now, while the Fed can keep feeding the greedy, there is precious little it can do, obviously, to tackle the virus; or perhaps less obviously, to tackle the economic and financial impacts of the virus.
These impacts cover such a broad spectrum. What governments do and don’t do to fight the virus. What companies and businesses do, don’t do and, crucially, have done to them. And what 7 billion consumers do and don’t do.
I repeat the main points I made last week. Cutting rates and embarking on budget spending binges are precisely ill fitted to tackling these virus consequences. Plus, there is precious little fiscal or monetary ammo left anyway.
The Fed at least starts at 1.5 to 1.75 per cent; our RBA starts at just 0.75 per cent.
Unlike the Fed, the RBA won’t be making its decisions on the basis of keeping share punters happy — except indirectly because of what the Fed does to keep Wall St happy.
We went into this with an economy that was at, at best, stall speed. We’ll find out how close to stalling with the December quarter data on Wednesday.
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