507A7B86-7507-41CB-8F0A-9AD191E32DA5 64A7790B-23B8-4FDB-B6C9-BC79573952FF 513D0B9D-7474-4D61-863F-70F1B3696FB7 60F0322F-B5F4-4A4F-B505-A8773B90F3B9 Comments A5B32EC7-3D41-482F-8D63-40B8CC4B0807 86DDA3D7-F193-4FF9-BE89-5AF7F4C92A8F 1FAE3C2F-8600-47BE-8D04-C46DC4FFD6B0 47ACF625-4F24-4613-9C4E-5E81CABE1FBA FB57FEB0-874D-4585-BF2D-FAAE8EBC17F6 AD97905C-02C9-4A07-9EEA-DA1F36CC7FA8 8727CDE7-CFD1-40EA-A8AF-256882E677CA B052573C-CEE4-4CD1-B86F-C9CB0202622C 1FDA88B9-6396-4BE0-B01D-4DC4FA38A632 6CD0F19E-3C61-44FC-9723-C7737416CD7C 62D3F811-1C6C-477C-972B-FE52539070FC•• 1FAE3C2F-8600-47BE-8D04-C46DC4FFD6B0 47ACF625-4F24-4613-9C4E-5E81CABE1FBA FB57FEB0-874D-4585-BF2D-FAAE8EBC17F6 EF459BAF-1347-4C71-9008-BDB3136FCCE8 3BB10396-3999-4821-82D8-3568DE598D06 F3D95CB7-5CF3-4B27-8B55-AA78EDF89759 63057605-E453-4FDE-89BC-ABD2BC6600E2 Views 6CD0F19E-3C61-44FC-9723-C7737416CD7C
    image image

    Instant Insights: Hyper Tuesday

    Instant Insights: Hyper Tuesday

    March 03, 2020 Global macro, Instant insights
    The Federal Reserve (Fed) announced a surprise 50bp rate cut this morning – its first rate cut outside of an FOMC meeting since 2008, following the collapse of Lehman Brothers.

    A marked reversal

    Although the Fed cited “strong” US economic fundamentals, it cited material, unknown and “evolving” risks posed by the global spread of the novel coronavirus.

    This is a marked reversal from comments last week. Fed officials had suggested no rate moves were imminent. It also follows a G-7 conference call this morning where no concrete action was announced but members pledged to act “appropriately” on the fiscal and monetary front.

    A cut offers indirect economic support

    A rate cut cannot be expected to support the economy by resolving supply chain disruptions or making consumers more willing to travel.

    However, it can offer more indirect support. The message that the Fed stands ready to provide liquidity and monetary accommodation offers support to financial markets, which can potentially feed through to the real economy via higher confidence and perceived wealth gains.

    Potential to ease financial conditions

    Importantly, expansionary monetary policy can attempt to loosen financial conditions, which have tightened sharply over the last two weeks (Figure 1). If successful, this has the potential to reduce the volatility of financial markets, thereby supporting the real economy.

    Figure 1: Financial Conditions

    Source: Bloomberg, March 3, 2020.

    In the hours following the announcement, Treasury yields fell materially with the 10-year yield dipping below 1% for the first time in history.

    Investors need to grapple with uncertainty

    The spread of the coronavirus is an unprecedented event and remains a rapidly evolving situation and source of real uncertainty for market participants. We expect it to impact global economies and financial markets alike for some time. Should further downside risks materialize, we expect the Fed to provide further accommodation in its ongoing goal of ‘sustaining the expansion’.

    Until markets receive further clarity, we expect them to remain volatile. In the midst of unpredictable daily swings, we believe investors need to avoid losing sight of their long-term objectives. Disciplined and opportunistic security selection-focused investors may in time find valuable and robust opportunities in carefully-underwritten credits.



    Please note: any forecasts or opinions expressed herein are Insight Investment's own as of March 3, 2020 and subject to change without notice. This information may contain, include or is based upon forward-looking statements. Past performance is not indicative of future results.

    Back to top