United States: The Federal Reserve announced a new set of policy measures designed to stabilize the credit markets and cushion the economic contraction. The scope of some of these actions is unprecedented, going beyond what we saw in 2008.
• Unlimited QE: Purchases of “Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”
• Support for commercial real estate: Including commercial mortgage-backed securities (CMBS) in QE.
• Support for consumers and businesses: Credit facility to provide financing to “employers, consumers, and businesses” ($300 billion).
• Support for corporate bonds: Two facilities to stabilize primary and secondary corporate bond markets. To support the secondary market, the facility will purchase ” corporate bonds issued by investment grade U.S. companies and U.S.-listed exchange-traded funds …” (see description).
• Support for consumer credit: Issuance of debt “backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration” (TALF 2.0).
• Support for municipal finance:
– Expansion of the Money Market Mutual Fund Liquidity Facility to “include a wider range of securities, including municipal variable rate demand notes and bank certificates of deposit.”
– Including “tax-exempt commercial paper as eligible securities” in the Fed’s commercial paper facility.
• Support for small and medium-sized businesses: “Main Street Business Lending Program to support lending to eligible small and medium-sized businesses, complementing efforts by the SBA.”
Stocks shrugged off the Fed’s announcement and continued to sink. The stimulus bill impasse in Congress weighed on US shares, as the S&P 500 hit the lowest level since 2016.
Eurozone: Consumer confidence has deteriorated sharply this month.
China: Steel inventories remain elevated (chart below), but the demand is recovering (second chart).
Equities: Earnings growth consensus estimates continue to tumble.
Global Developments: The global economic contraction is likely to be deeper than in 2008, but the recovery is expected to be faster, according to Oxford Economics.
Food for Thought: How long can the coronavirus survive on surfaces?
Edited by Daniel Moskovits
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