What does a market reaction to the Fed's decision say?

5 thg 3, 2020

Since yesterday, by and large, was the first full day of working out the Fed’s emergency decision to lower the rate by 0.5%, today some results can be summed up. And they are generally disappointing for optimists. In theory, stock markets should have perked up and provoked a sharp increase in stock indices. But this did not happen, that is, there was growth, but not at the scale that could be expected. In theory, the pressure on the dollar should have intensified. But yesterday, the Dollar Index rose. In theory, the Fear Index was to drop significantly. But according to the results of yesterday, the decrease was insignificant.

What are all these signals talking about? The magic of Central banks no longer works the way it used to. Lower rates no longer automatically resolve existing problems. And this is a very alarming signal for stock market buyers, gold sellers, and other optimists. It seems that the bubble is nevertheless broken and the air, despite all the efforts of its creators, is gradually coming out. In general, monetary policy has exhausted itself and this is an extremely alarming signal: if the situation worsens, it will not be possible to resolve the situation with the usual methods.

The consequences of the coronavirus have not even begun to appear, and Nasdaq is quoted 10% below the maximum and, it seems, can no longer grow with the certainty with which it was literally a couple of weeks ago.

So in everything that happens, we see the strongest confirmation of our basic investment ideas: sales on world stock markets, and especially on the US stock market; gold purchases and sales of risky assets (such as the Russian ruble).

But back to the events of yesterday, which was very full of news. The Bank of Canada lowered the rate immediately by 0.5%. The Canadian dollar obediently worked this out, losing about 100 points paired with the dollar. But in general, the reaction was relatively calm at such a massive reduction in rates.

US employment data from ADP turned out to be quite good: +183K with a forecast of +170K. What sets in a positive mood against the dollar ahead of Friday's official statistics. The ISM Index in the non-productive sphere also pleasantly surprised: 57.3 points with a forecast of 54.8 points. But the Eurozone indices traditionally fell short of expectations and for the most part, came out worse than forecasts.

Well, the results of super-Tuesday played into the hands of the dollar, on which Biden won quite unexpectedly, who is considered a more adequate option from the Democrats as opposed to the “left” Sanders.

In general, our desire to sell a pair of EURUSD intensified up to the recommendation to sell the pair from the current ones with the addition of any attempt to grow.

Oil stocks in the United States have grown quite slightly, but all the attention of oil market participants has been riveted to the OPEC meeting and OPEC+ decisions. It is very likely that today some specific information will appear that could provoke strong movements in the oil market. If OPEC+ decides on additional reductions (ideally about 1 million b/d), oil has a chance of growth. The main stumbling block is Russia and its unwillingness to scale up the reduction.