The Federal Reserve donned its metaphorical cape on Tuesday and swooped down on nervous markets with an emergency interest rate cut the likes of which have not been seen since the height of the global financial crisis in 2008.
But not even that grand gesture could stem the sinking feeling among investors that coronavirus could take one heck of a toll on the US and global economies.
Right after news hit that Fed policymakers had slashed the federal funds rate by half a percentage point, the Dow Jones Industrial Average vaulted 350 points higher. But the index soon turned tail and headed lower again.
After bouncing around, moving in and out of negative territory, that sinking feeling finally won out to see the Dow close down 785.91 points or almost 3 percent – the eighth negative finish in nine trading days.
The broader S&P 500 Index- a proxy for United States retirement accounts – gave back 2.8 percent while the Nasdaq Composite Index fell 3 percent.
“The market realizes rate cuts are not the appropriate policy response to growing deflationary pressures,” Steven Ricchiuto at Mizuho securities wrote in a note to clients.
While the stock market could not keep the darkness out, US treasuries drew investors like moths to a flame.
The yield on the 10 year US treasury – used as a benchmark for US mortgages and student loans – sank below 1 percent for the first time. Ever.
Gold, a perennial safe haven during times of mounting uncertainty, gained nearly 3 percent.
When grand gestures are not enough
Not only did the Fed come through with a rate cut between scheduled meetings, something it has not done since 2008, it also produced the biggest one-off cut since the global financial crisis.
During a news conference following the rate cut, Federal Reserve Chairman Jerome Powell told reporters that the coronavirus outbreak and measures being taken to contain it “will surely weigh on economic activity both here and abroad for some time”, adding that “the magnitude and persistence of the overall effects on the economy, however, remain highly uncertain and the situation remains a fluid one.”
The half a percentage point cut lowers the federal funds target range to 1 percent- 1.25 percent. Fed policymakers voted unanimously to back the move and signalled in a post-meeting statement a willingness to cut rates even further if necessary.
Policymakers are scheduled to meet on March 16-17.
“We now expect the Fed to follow that reduction with an additional 25bp [a quarter of a percentage point] rate cut at the FOMC meeting scheduled for the middle of this month,” said Paul Ashworth, chief US economist at Capital Economics.
“Nevertheless, our forecast is based on the assumption that the number of domestic cases remains relatively limited – rising to the tens of thousands rather than millions. In the event of a more severe outbreak, the US could experience a mild recession, prompting the Fed to cut rates to near-zero again and Congress to deliver a fiscal stimulus via some form of rebates or a payroll tax cut,” Ashworth noted.
On Tuesday, Australia‘s central bank took the lead among developed economies after the country’s central bank cut its benchmark rate to a record low, citing challenges to growth from coronavirus.
US President Donald Trump seized upon Australia’s rate cut to prod the Fed to follow suit, tweeting that the Fed “Should ease and cut rate big. Jerome Powell led Federal Reserve has called it wrong from day one. Sad!”.
When asked by reporters on Tuesday whether political pressure had influenced the Fed’s interest rate policy, Powell said: “We’re never going to consider any political considerations whatsoever.”
On Monday, the Organisation for Economic Cooperation and Development (OECD) warned coronavirus “presents the global economy with its greatest danger since the financial crisis.” It lowered its forecast for global growth to 2.4 percent for the whole year but cautioned that “broader contagion across the wider Asia-Pacific region and advanced economies” could bring global growth to as low as 1.5 percent this year – half of what it had forecast in November.
On Tuesday, the World Bank announced an initial package of up to $12bn in immediate funds to help countries with crisis financing to lessen the impact of the coronavirus outbreak.
“The point is to move fast; speed is needed to save lives,” World Bank President David Malpass said during a teleconference with reporters.
Home sales tumble again as mortgage rates surge – Business News – Castanet.net
Sales of previously occupied U.S. homes slowed for the third consecutive month in April as mortgage rates surged, driving up borrowing costs for would-be buyers as home prices soared to new highs.
Existing home sales fell 2.4% last month from March to a seasonally adjusted annual rate of 5.61 million, the National Association of Realtors said Thursday.
That was slightly higher than what economists were expecting, according to FactSet. Sales fell 5.9% from April last year. After climbing to a 6.49 million annual rate in January, sales have fallen to the slowest pace since June 2020, when they were running at an annualized rate of 4.77 million homes.
The median home price in April jumped 14.8% from a year ago at this time to $391,200. That’s an all-time high according to data going back to 1999, NAR said.
“Without a doubt, rising mortgage rates, rising prices are hurting affordability, but we should not discount that we’re still lacking inventory,” said Lawrence Yun, NAR’s chief economist.
Fierce competition for limited properties on the market and ultra-low mortgage rates superheated the housing market the last couple of years, but now its cooling as homebuyers face sharply higher home financing costs than a year ago following a rapid rise in mortgage rates.
In April, the weekly average rate on a 30-year fixed-rate home loan climbed above 5% for the first time in more than a decade, crimping would-be homeowners’ purchasing power at the outset of the spring homebuying season, traditionally the busiest period for home sales.
Mortgage rates are climbing following a sharp move up in 10-year Treasury yields, reflecting expectations of higher interest rates overall as the Federal Reserve hikes short-term rates in order to combat the worst inflation in 40 years.
With inflation at a four-decade high, rising mortgage rates, elevated home prices and tight supply of homes for sale, homeownership has become less attainable, especially for first-time buyers.
Higher rates can limit the pool of buyers and cool the rate of home price growth — good news for buyers. But higher rates can also limit affordability.
For now, the housing market continues to favor sellers as buyers vie for a still tight inventory of homes for sale, which has kept pushing up home prices. Even as sales slowed last month, it was common for homes on the market to receive multiple offers.
Inventory levels have to go higher before multiple offers dissipate from the market, Yun said. Until then, prices are likely to move higher.
“We anticipate, again, a continuing decline in home sales, but not necessarily home prices,” he said.
On average, homes sold in just 17 days of hitting the market last month, unchanged from March or April last year. In a market that’s more evenly balanced between buyers and sellers, homes typically remain on the market 45 days.
As is typical in the spring, the number of homes on the market increased in April from the previous month. Some 1.03 million properties were available for sale by the end of April, up 10.8% from March, but down 10.4% from April last year.
At the current sales pace, the level of for-sale properties amounts to a 2.2-month supply, the NAR said. That’s up from 1.9 months in March, and down from 2.3 months a year ago.
Real estate investors and other buyers able to buy a home with just cash, sidestepping the need to rely on financing, accounted for 26% of all sales last month, down from 28% in March, NAR said.
Homes purchased by investors made up 17% of sales in April, down from 18% the previous month, while first-time buyers accounted for 28% of transactions, down from 30% in March and 31% a year ago.
Canadian Real Estate Prices 38% Overvalued, Largest Trend Deviation In 40 Years: BMO – Better Dwelling – Better Dwelling
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- Canadian Real Estate Prices 38% Overvalued, Largest Trend Deviation In 40 Years: BMO – Better Dwelling Better Dwelling
- Consumer sentiment in Canada posts biggest drop since pandemic onset amid inflation The Globe and Mail
- One of the Hottest Housing Markets in Canada Turns into Buyers’ Market Bloomberg
- View Full coverage on Google News
Gas prices in Ontario rising: Best time to fill up | CTV News – CTV News Toronto
Gas prices in Ontario dropped 10 cents per litre on Friday ahead of the long weekend, but the relief at the pumps is expected to be short-lived.
The average price of gas in Ontario dropped to $196.6 per litre Friday, which is a 13-cent drop from Wednesday.
However, President for Canadians for Affordable Energy Dan McTeague says Ontario gas prices are projected to rise over the next two days.
“We’re going to see a four-cent increase on Saturday and although the markets haven’t settled yet, it’s pretty clear that we are likely looking at about a two-cent increase (on Sunday). In other words, you got the 10 cents off today, it’s going to go up between now and Sunday by about six cents a litre,” he told CP24 Friday morning.
On Wednesday, gas prices hit a whopping $209.9 per litre, and McTeague says gas prices are set to top that in the coming week.
“Next week, the Americans begin their unofficial kickoff to the summer driving season. That’s going to put a lot of pressure on gas prices for us here in Canada. They are really the ones to determine prices for us, they’re a large market. I would expect that we’re going to be back to $2.10 a litre probably within the next week or so.”
Gas prices have been elevated since late February mostly due to fuel supply shortages amid the war in Ukraine and international sanctions that have been imposed as a result.
For the coming summer months, McTeague says the outlook on gas prices is grim partly because of impending weather issues.
“We may see days where we hit $2.30, $2.25 if we’re lucky. American weather problems in the Gulf Coast tend to be a big deal,” he said.
“The summer looks like average prices will get to $2.15 a litre here in the GTA, and right across most of southern Ontario,” he added.
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