Wall Street ends up in the red despite Fed rate cuts

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WALL STREET FINISHES IN RED

NEW YORK (Reuters) – The surprise drop in the Federal Reserve’s key interest rates did not have the expected effect on the New York Stock Exchange, which plunged into red Tuesday after yesterday’s rebound.

The Fed decision “scared investors after this strong rebound because it was taken immediately and at 50 basis points. This is more than expected, and some may say that the situation is more serious than we think, “says Alan Lancz, president of Alan B. Lancz & Associates in Toledo, Ohio.

At the close, the Dow Jones index ended down 2.94%, dropping 785.91 points to 25,917.41.

The larger S & P-500 lost 86.86 points, or 2.81%, to 3,003.37,003.04.

The Nasdaq Composite fell by 268.08 points (-2.99%) to 8,684.09 points.

The Fed’s decision and the communiqué of the G7 finance ministers, who expressed their determination to limit the economic impact of the epidemic without going so far as to advocate a budgetary effort or coordinated cuts in interest rates , intervened while the financial centers are trying to recover from the correction of the past week, the worst since the financial crisis of 2008-2009.

But fears linked to the effects of the coronavirus on production remain intact, in particular because the epidemic is disrupting supply chains very strongly and affecting sectors such as transport and tourism

“The Fed’s preemptive strike against the coronavirus has gone wrong,” said Michael Arone, investment strategy officer at State Street Global Advisors in Boston.

“His reaction suggested to the markets that the coronavirus was of the same order as the Great Depression, the bursting of the internet bubble or the global financial crisis,” he said.

The equity markets had initially gained more than 1% at the announcement of the reduction by 50 basis points of the range of the rate objective of the “fed funds” before plunging again, the investors doubting that the injection of money on the financial markets responds to the central problem posed by the coronavirus: a fall in the activity of companies hit by the disruption of production chains and the effect on consumption.

“This rate cut illustrates the magnitude of the problem facing the global economy,” said Peter Kenny, of Kenny’s Commentary LLC and Strategic Board Solutions LLC in New York.

“Normally, the markets would welcome a rate cut, and they hoped for it. Now that it is there, they wonder what will happen next,” he added.

In a press release, the rating agency Standard & Poor’s notes that the Covid-19 is now present in more than 70 countries. This spread led him to double his estimate of the macroeconomic impact of the epidemic compared to his previous calculation on February 11.

Global economies and credit markets face increasing risk, adds S&P, which however expects “likely” stabilization of the health and macroeconomic situation in the second quarter.

Ten-year Treasury bond yields fell below 1% for the first time, as investors shifted their positions from the equity market to the bond market.

On commodities, a barrel of Brent lost 4 cents to 51.86 dollars. It had climbed to $ 53.90 just after the Fed’s announcement.

US light crude West Texas Intermediate (WTI) rose 43 cents a barrel to $ 47.18 after hitting a session high at $ 48.66.

(Herbert Lash and Matt Scuffham; French version Henri-Pierre André)

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