The world economy is in a state of emergency. Stocks are plunging continuously as investors are timid of the spreading novel coronavirus. While China appears to have managed to handle the situation and reports close to zero cases on a daily basis, countries from the European Union and the US see exponential increases.
In yet another attempt to provide a helping hand to the markets, the US announced a second rate cut, bringing down interests to a near-zero. Additionally, the Fed will be buying at least $700 billion in bonds to assist the market’s function.
Speaking on the matter was Jerome Powell, Chairman of the US Federal Reserve, who said:
“We do know that the virus will run its course and that the U.S. economy will resume a normal level of activity. In the meantime, the Fed will continue to use our tools to support the flow of credit.”
However, it does look like the US is resorting to desperate measures to keep the economy afloat, hinting that the coronavirus might not be the real reason for the current crisis.
Using All Ammunitions At Once
A lot of investors considered the second emergency rate cut to be a “sign of desperation.” According to Terence Wong, CEO at Azure Capital, “it’s basically using up all their ammunition in a three-week span […] There’s nothing left.”
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Wong brings up a good point. The coronavirus, assuming that’s the primary cause of the current crisis in the financial and stock markets, hasn’t run its course yet. Data shows that the US currently has 4141 reported cases, up more than 10% in the past 24 hours alone.
Keep in mind that these are reported cases only. The virus is highly contagious, and it spreads like wildfire. There are plenty of countries to prove this, especially in Western Europe. Italy, Spain, Germany, France, Switzerland, Sweden, Belgium, Austria, and almost every other country, are seeing exponential growth in the number of people infected and, as of yet, it shows no signs of slowing down.
Companies are still assessing and evaluating the extent of the virus and the impact that it would have.
Too Soon For Injections?
In light of the above, we may understand the extent of the outbreak in the US by the end of the month. And that’s perhaps a best-case scenario.
Assuming that this is true and that the virus is the reason behind the current market collapse, then there is absolutely no reason for investors to currently feel optimistic. What is more, this will continue unless there is some clarity on the overall spread of the virus and how it could (provided it can be) contained.
This means that the timing of the latest financial injection and the rate cut is off, to say the least. It seems as if the Government is pouring money while companies have no clear idea of how the business environment will look like next week, let alone any longer term.
Don’t take the above for a fact, though, as numbers say it all. Following today’s market open, the S&P 500 is down a whopping 8.76%, at the time of this writing, while the Dow Jones Industrial Average lost more than 9%.
Gold is also down 1% today, as an ounce currently trades at $1,500.
The cryptocurrency markets are no exception. Contrary to what many people seemed to believe about Bitcoin acting as an uncorrelated hedge, the cryptocurrency charts a decline of above 5%, trading at slightly more than $5,000. Altcoins follow.
In any case, we’ve still to see how the markets will handle the current crisis, but if one thing is for sure – comparisons between now and the financial collapse of 2008 have already started to flood the Internet.