North American markets nosedived on Monday morning as the U.S. Federal Reserve’s emergency rate cut to near-zero over the weekend was not enough to calm investors amid the coronavirus outbreak.
The Dow Jones Industrial average lost 2,250 points, or nearly 10 per cent at market open, while the S&P 500 was down 220 points. The S&P/TSX Composite Index was also deep into the red Monday morning, opening down 11.5 per cent as it continues to struggle with a global oil price shock.
Circuit breakers stopping further downward movement were immediately activated, halting trading for 15 minutes. As soon as trading re-opened, however, investors widely continued to sell-off from equities and nearly pushed the markets toward hitting another circuit breaker which halts trading at 13 per cent.
Before a slight bounce from its lows, the Dow was temporarily trading 30 per cent off the 52-week high it reached in February.
“The market’s in panic mode,” Chris Rupkey, chief financial economist for MUFG Union Bank, said in a phone interview with Bloomberg. “The move overnight was a shock and the market isn’t taking it as the Fed officials riding to the rescue. They’re taking it as ‘get out of the way, look out below, this could be really, really bad.’”
Futures trading on Sunday hinted that another bloodbath was coming on. When those markets opened Sunday, they quickly plunged by five per cent to reach the “limit down” level. After falling by five per cent, the CME Futures Exchange disallows trades to occur below this point and only accepts those coming in above.
Investors were reacting to another emergency rate cut issued by the Fed, which brought rates down to near-zero for the first time since the financial crisis. The new benchmark rate now sits at 0 to 0.25 per cent. The central bank also announced that it would be restarting quantitative easing and buying US$700 billion worth of U.S. Treasuries and agency mortgage-backed securities.
“The actions we have announced today will help American families and businesses, and indeed, our entire economy weather this difficult period and will foster a more vigorous return to normal once the disruptions from the coronavirus abate,” Powell said.
Powell said that rates would likely sit at zero for the near-future and that the Fed would be patient before raising them again.
The Fed cut on Sunday followed the Bank of Canada’s decision to issue an emergency rate cut on Friday that brought the overnight interest rate down to 0.75 per cent.
Despite the move, economists widely expect the Canadian central bank to cut rates again to 0.25 per cent by April.
With file from Bloomberg
• Email: [email protected] | Twitter: VicF77
