It looked like the G7’s brightest and best financial minds had failed to deliver – and then the Federal Reserve went and announced an impromptu rate cut.
After a conference call between its central bankers and finance ministers – they daren’t actually meet in person, duh – the G7 issued a statement, via Jerome Powell and Steven Mnuchin, reaffirming the group’s commitment to combatting the coronavirus without actually announcing any concrete measures.
It looked like that was all the markets were going to get – disappointing, yet pointing well enough in the right direction to broadly preserve the day’s gains.
But Powell had an ostensible ace up his sleeve. His arm no doubt twisted by a dovish Donald Trump, the Fed slashed interest rates by half a percentage point to 1%-1.25%, taking the number of FOMC cuts to 4 since July last year.
The Dow Jones didn’t actually move that much higher after the announcement. Instead it largely just reversed its triple digit decline, at best climbing another 0.3%. That’s because the rate cut is more justification for yesterday’s record-breaking rebound than an impetus for a fresh surge this Tuesday.
As for Europe, the region’s indices remained off their intraday highs despite the Fed intervention. It might simply be that anything other than a co-ordinated action plan from the G7 was going to disappointment, especially following the Dow’s insane gains on Monday night. Then there’s the fact the pound and euro are now both up around 0.4% against the dollar.
The rate cut may have also acted as a reminder of just how serious the coronavirus situation is, with multiple stats – worst week since 2008, first emergency cut since 2008 – that harken back to the dark days of the financial crisis.
Regardless the FTSE rose 1.9%, leaving it around 70 points shy of its 6850 peak. The DAX was up 200 points, half of its morning rise, while the CAC added 1.8%.