Traders Not Impressed with Fed Rate Cut
The Federal Reserve cut rates by 0.5% in their first unscheduled emergency meeting since 2008. The move comes as an effort to combat the potential negative effect that a possible corona virus spread could have on the economy. This resulted in USD weakness and an initial move up in indices. US 10 Year Yields dropped below 1% for the first time ever.
After that initial reaction, though the SP500 gave up the initial gains and headed lower towards the 3000 handle where it found some support. Last time the Fed cut rates, we had a similar reaction in indices. The thinking is - if the economy is doing so well, why the need for an insurance cut?
This time indices moved up yesterday on the anticipation of rate cuts, but after the Fed actually delivered them, the market wasn't reassured.
Why did this happen? This emergency double cut shows that there is something to be concerned about and increases the panic. It also shows the relatively low ammo that the Fed has in case of crisis.
Now last time they did a cut, markets sold off, but then recovered in the following weeks and started making new highs. That being said the situation is different, as then we didn't have the virus threat.
It could be essential to monitor the spread of the virus going forward and how the economies of countries other than China get impacted by it.
SP500 Daily Futures
If the move lower in SP500 Futures continues, the next potential support levels would be 3000 and 2900 handles and last week's low of 2853.25.
The Euro continued it's move up posting a 10th consecutive green day against the Dollar. The move today came mainly due to USD weakness as a result of the Fed interest rate cut. Also the preliminary Eurozone CPI (YoY) for February came in as expected at 1.2%.
If the move up potentially continues, the next possible resistance lies at 1.1239 (The high for December 2019).