ASX200 hammered after US stimulus delayed
In our note on Friday, we asked whether the relative calm viewed on Wall Street on Thursday night was the beginning of a display of resilience for global equity markets or the calm before the next storm. One of the dark clouds highlighted was a delay by U.S. Congress to approve a now $2tn fiscal stimulus package to counter the impact of Covid-19. In a vote on Sunday evening, the proposed legislation was blocked by the Democrats, concerned the bill in its current shape is overly generous to big business at the expense of workers and hospitals.
Share this:
In our note on Friday, we asked whether the relative calm viewed on Wall Street on Thursday night was the beginning of a display of resilience for global equity markets or the calm before the next storm. One of the dark clouds highlighted was a delay by U.S. Congress to approve a now $2tn fiscal stimulus package to counter the impact of Covid-19.
In a vote on Sunday evening, the proposed legislation was blocked by the Democrats, concerned the bill in its current shape is overly generous to big business at the expense of workers and hospitals.
While negotiations are set to continue and a deal could still be struck over the next 24 hours, some traders will recall how during the Global Financial Crisis (GFC) politics delayed the approval of programs such as the Troubled Asset Relief Program (TARP) in 2008, that proved crucial to healing the crisis.
The delay to the fiscal stimulus bill comes following a warning over the weekend from the President of the Federal Reserve Bank of St Louis, James Bullard that the U.S. unemployment rate may hit 30% in the second quarter, due to Covid-19 shutdowns.
Little surprise then that S&P 500 futures went limit down this morning after the re-open, while locally the ASX200 fell another 8%, to an eight-year low of 4402.5. The total decline of the ASX200 after just two months is now almost 40% and approaching the ~55% decline experienced during the GFC. Keeping in mind the fall during the GFC took in comparison, a pedestrian 16 months to unfold.
Granted the challenge that Covid-19 presents is very different to the financial leverage challenge faced during the GFC. However, after the U.S. fiscal stimulus bill is approved the level of overall stimulus, including government spending, rate cuts, quantitative easing, equity injections, grants, and tax relief will exceed that seen during the GFC.
With that in mind and if history is any guide, now is not the time to panic and sell stocks at their current depressed levels.
Source Tradingview. The figures stated areas of the 23rd of March 2020. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
Related tags:
Open an account in minutes
Experience award-winning platforms with fast and secure execution, and enjoy tight spreads from 0.5 pts on FX and 0.3 pts on indices.
Economic calendar
Web Trader platform
Our sophisticated web-based platform is packed with features.
Related articles
Nikkei 225 Eyes Wall Street Bounce Ahead of NFP
Wall Street rebounds as Fed hike bets ease, while Nikkei 225 futures eye 66k resistance ahead of US nonfarm payrolls.
Cyclical stocks sniff out better times ahead
Different economies, different drivers, similar price action. The German DAX, ASX 200 and Russell 2000 are all hinting at a more optimistic view on the global economy.
Wall Street Stabilises: Can Nikkei and ASX Extend Their Bounce?
Wall Street steadies after a choppy week as traders assess whether the ASX 200 and Nikkei can build on early signs of a technical bounce.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.forex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.