Asian and European stock markets rebounded today while bond yields receded from record lows. This could be attributed to policymakers increasing concessions to markets by offering more and more stimulus packages – adding evidence to the theory of a coordinated global response to coronavirus shock.
Asian stocks rose by an average of more than 2% and European stock markets advanced by about 3%. The technical correction of oil prices, where intraday growth peaked slightly above 6%, has dried up. Further dynamics resembled the resumption of a downtrend more and more. Russian Rosneft announced an increase in production by 300 thousand barrels after the expiration of the OPEC+ pact in April. This crushed the remaining hopes that OPEC and Russia could return to the negotiating table. Prices are thus sentenced to a slow recovery as a result of dropping less efficient, unprofitable, and less sustainable suppliers.
Yields on 10-year US Treasury bonds doubled from 0.34% to 0.7%, as President Trump signaled that the focus on financial help to the economy could shift from monetary to fiscal. He promised to discuss “very dramatic” measures with Republican congressmen, which the market perceived as sharing the “burden of economic stimulus” between the Fed and the government. Thus lowering expectations of implementation of extreme measures like zero rates, QE launch etc.
As a result, the dollar managed to recoup losses against major currencies despite not guaranteeing continuation of the trend. It’s likely that the Fed will make it clear at the March meeting that resumption of QE may be in consideration if economic outlook deteriorates, but it is unlikely that the QE topic will be touched on by the market before the March meeting.
With the market panic dying out, the basic scenario of interest rate change is again 0.5%, although only yesterday the market believed that the Fed could lower the rate by 0.75%:
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