Decision is indicative of US fears of recession as UK FTSE100 falls to less than 5,000
US Federal Reserve slashes rates to zero as markets drop
- Fed’s decision to cut rates to zero is reminiscent of the emergency situation during the financial crisis
- UK FTSE100 has opened down another 7% this morning and broken through 5,000
- Restaurants, bars and other entertainment venues are facing closure and will bring inevitable job losses.
- Markets for the time being are set to continue on this rollercoaster ride
The action taken by the Fed overnight has only added to the roller coaster ride that is the current state of the financial markets. Its decision to cut rates to zero is reminiscent of the emergency situation during the financial crisis and indication of where it thinks the US economy could go – a recession or maybe worse! The Fed’s decision, which was co-ordinated with other major central banks also taking action, initially lent support to financial futures markets at the open on Sunday night.
However, as the night progressed Asian markets tracked lowed and the UK FTSE100 has opened down another 7% this morning and broken through 5,000, a level which was unthinkable just a few weeks ago. While Central Bank action should be welcomed to support crumbling economic activity, it will do little to actually get consumers spending at a time when restaurants, bars and other entertainment venues are facing closure and will bring inevitable job losses.
Unfortunately I believe the markets for now will ignore monetary policy actions and focus on the pace of the spread of the disease and the drastic actions Governments across the world take to stop it. Monetary & fiscal policies and direct support for the most affected sectors will help on the recovery post the peak of the epidemic, but the markets for the time being are set to continue on this rollercoaster ride.
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