AG Macro Brief - 03 Mar 2020
Was yesterday’s reversal in the markets a bottom?
I’m not so sure. At the very least it could be a temporary bottom.
Despite the increase in coronavirus cases in the US, the move up in US stocks was big. The Dow rallied over 5%. The last time we saw something like this was in 2009.
The Bank of Japan (BoJ) was busy buying Japanese stocks in record amounts last night and likely buying other global stocks and commodities as well.
This clear engagement in financial markets is already within the monetary policy toolbox of the BoJ. Other major central banks are still not in the business of buying equities. They only buy their own government issued debt or in the case of ECB corporate debt as well. As we already know the central bank in China has been in the business of supporting markets since early February. Even Chinese stocks were up 3% . So, there are already major central banks propping up financial markets. There are also talks that Italy could come up with a significant fiscal stimulus and comments from other major central bankers that they are ‘ready to act’.
The key is in major major governments coming together in coordination on a containment strategy and a stimulus plan for the global economy. The most sad part of the virus story has been the lack of trust and lack of collaboration between the countries. The isolationist behavior has not done anyone any favors but has only increased the probability of a worst- case outcome.
The good news is that a global ‘coordination’ has now been telegraphed to the world. An emergency conference call with G7 finance ministers and central banks has been scheduled to take place today. Nobody wants to travel.
Market expectations for a positive outcome are very high and it is important they deliver something more than what is already discounted in the markets. My hunch is, if it is anything less than a 50 basis point cut in Fed rates and other creative measures that they can dream up, it will be rejected by the markets. The aim of the policy makers should be to bring back confidence in the markets and change the pessimistic mood and tide of the markets.
Today and tomorrow are key for the future direction of the general markets. So do keep your fingers crossed.
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.