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

Subscriber only

|

March 2, 2020 10:00pm

Close

Pause

Loaded: 1.47%

Current Time 0:00

/

Duration 11:13

Fullscreen

heraldsun.com.au US Fed to ‘step in’ if coronavirus continues to hurt Wall Street: Anthony Scaramucci

NOW PLAYING

Resume

US Fed to ‘step in’ if coronavirus continues to hurt Wall Street: Anth…

11:13

UP NEXT

·           

The race to be the US Democratic presidential nominee ‘is down to two’

2:23

·           

‘Some are cheering on a recession’ in Australia

3:24

·           

Coronavirus fears leave Venice canals empty

0:45

·           

“We didn’t sleep for three days” Delhi after the riots

1:39

·           

Fukushima evacuees eye Japan’s Olympics preparation

1:50

·           

US ramps up virus response, second death reported

1:37

·           

Buttigieg drops out of Democratic race two days before Super Tuesday

2:20

·           

Pete Buttigieg announces end of White House bid

1:11

·           

Democratic 2020 hopefuls march in Selma; Sanders campaigns in California

2:09

·           

Hanson ‘worried sick’ about women in ‘remote Indigenous communities’

4:49

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.

 

---

Archr LLP is Authorised and regulated by the Financial Conduct Authority (FCA reference 617163).
Archr LLP is not covered by the Financial Services Compensation Scheme (FSCS).
Archr is registered in England and Wales No. OC371018. Registered office 115B Drysdale Street, Hoxton, London, United Kingdom, N1 6ND

This message may contain confidential or privileged information. If you are not the intended recipient, please advise us immediately and delete this message. The unauthorised use, disclosure, distribution and/or copying of this email or any information it contains is prohibited.

This information is not, and should not be construed as, a recommendation, solicitation or offer to buy and sell any securities or related financial products. This information does not constitute investment advice, does not constitute a personal recommendation and has been prepared without regard to the individual financial circumstances, needs or objectives of persons who receive it.

You are receiving this email because you are a valued client of Archr.