The Malta Independent 3 June 2020, Wednesday

Unlimited Quantitative Easing as the Fed goes all-in

Tuesday, 24 March 2020, 12:18 Last update: about 3 months ago

The US Federal Reserve announced unlimited bond and mortgage-backed securities purchases in a sweeping addition to earlier emergency moves.  While US Markets initially spurted higher, the rally did not last long as Washington remained deadlocked on a US bailout bill with the S&P 500 index shedding 2.93%, while the NASDAQ composite index performing gallantly better with a nominal loss of 0.27%.

The unprecedented Fed action didn't impress European markets either, with the Stoxx Europe 600, slipping 2%. The major regional indexes in Europe were also weaker, with the German DAX, French CAC 40 and the U.K. FTSE 100 all retreating.

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The negative global sentiment also affected the Malta Stock Exchange as it registered a loss of 3.6%, which was driven down by declines in IHI, MIA, and RS2.  Malta International Airport continues to see selling pressure registering a loss of 12.4% from the previous days close.

 

Unlimited Quantitative Easing

In an unprecedented move, after the Fed already cutting rates to zero, launched unlimited Quantitative Easing.  The Federal Open Market Committee expanded its large-scale asset purchase program by promising to buy 'in the amounts needed' as it aggressively responds to the COBID-19 pandemic.

In other words, the US FED has committed its asset purchasing program "in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy."

In addition, the Fed said that the unlimited asset purchases will include commercial mortgage-backed securities; the previous plan only included residential agency mortgage-backed securities.

US President Donald Trump, known to have a very lukewarm relationship with Fed chairman Jerome Powell declared at Mondays White House Covid-19 press briefing, "I am happy with him. I really think he's caught up and he's done the right thing. And I think ultimately we will be rewarded because of the decision he made over the last -- he's really stepped up over the last week."

"I'm very happy with the job he did."

To wit, some professional money managers are looking beyond the abyss and have already started to make 'recovery bets' on the economy by investing entirely in stocks.  Bill Ackman the hedge fund investor and managing partner of Pershing Square Capital Management, during an interview with Bloomberg, sound cautiously optimistic, claiming he had closed his shorts and was "100% long".

 

This article was issued by George Grech, Head of Operations at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

 


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