Stocks are rallying after the Fed showed markets their stimulative measures just took some steroids. The Fed unveiled fresh steps to deliver $2.3 trillion in loans and finally addressed what they are doing for Main Street and municipal liquidity facilities. The Fed will buy riskier debt and that should keep this V-shaped rebound going a little longer. Today’s actions by the Fed provide another layer of support for small and mid-sized businesses. Solvency pressure on smaller businesses has been somewhat alleviated now that the Fed signaled, they will buy some junk-rated corporate debt.
US stocks initially pared earlier gains after Powell’s webinar didn’t raise the bar that we will see anything new actions in the immediate future. The Fed has shown the markets they are doing whatever it takes for the economy, but now it seems they need to wait-and-see how things unfold. Short-sellers will remain cautious about fighting this Fed’s latest shock and awe announcement.
FX
The dollar fell to a one-week low following the Fed’s latest stimulus measures. The dollar is looking very vulnerable here in the short-term. The Fed impressed and this could keep the pressure on the greenback.
Virus
Earlier this morning, Dr. Fauci, director of the U.S. National Institute of Allergy and Infectious Diseases delivered some optimistic comments that also provided some support that the economy is getting closer to the other side of the virus. Fauci noted that virus fatalities might look more like 60,000, an improvement from the 100-200K estimate he gave at the end of last month. He said that if mitigation strategies remain in place and prevent a resurgence, Americans might see some normalcy this summer.
Jobless Claims
Financial markets saw a limited reaction to another high jobless claims reading. Over 6.6 million jobless claims were filed last week, over a million over the median estimate, but below the whisper number of 7 million filings. The last three-weeks have seen the coronavirus-induced economic shutdown total 16.7 million jobless claims, which will send the unemployment rate soaring towards the 13% area. What took away the focus from jobless claims release was the simultaneous Fed announcement of their latest attempt at supporting the economy.
Oil
As the OPEC + virtual meeting kicks off, oil prices extended their gains after reports that Russia and Saudi Arabia have reached a deal on deep oil cuts and that OPEC ++ are talking about cuts as large as 20 million bpd. As is with every OPEC meeting, many plot twists are to be expected. It is clear no one wants to be short going into this meeting, but they might be ready to fade any major rally.
Gold
Gold prices surged after the Fed did it again. The Fed appears to be taking steroids as they keep delivering unprecedented stimulus actions. The Fed’s latest actions to buy some junk-rated corporate debt, gave risky assets a boost and sent the dollar lower. Gold’s bullish outlook remains firmly intact now that the Fed has delivered and hopes are still high that strong fiscal responses from the US and Europe will keep risky assets supported.