2020/3/24 The Fed has no limit, and launched forbidden policy!
On the evening of 3/23 Asian time, the Fed launched a heavy monetary policy, announced unlimited bond purchases, and expanded the scope of bond buying. The Fed had opened full firepower, and historically did all they could do to act as a lender of last resort to the whole economy. The initial response of the market was good, but due to fiscal policy still stuck in Congress, US stocks rebounded a little but ended closed lower on 3/23. 3/24 Asian stock markets rose in response, driving European and American stock futures to rise as well. However, I would only define the current rising only as a technical rebound, and it is still not a turning point yet. The measures of the Fed still only serve to stabilize the confidence and maintain the financial system without causing the liquidity to be cut off due to a credit crunch. However, they cannot make a fragile economic miraculously rebound. Just like ECMO can only sustain life, but it can't make patients healthier. If the stock price rebounds, it is more likely technical short-term mean reversion combined with the policy story rather than turning to bull. After all, referring to historical experience, if the US economy is facing a recession, the stock market decline range is 40% to 50%, and the rebound during the period would not be small. Currently, the market increasingly believes that the impact of the epidemic on the economy will surpass the financial crisis of 2008 (at least humans could not be forced to stop economic activities at that time), thus it would be not sensible to me if the stock market back to bull only with a 30% correction.
The reaction of the bond market was relatively calm. What is more paradoxical is that in the face of the huge amount of funds that Fed floods into the market, the interest rate rebounded after a small drop, and the US 10-year bonds yield fluctuated around 0.8%. Technically, the price would tend to narrow in the short-term, and I basically expect the interest rate to go down, but it would be difficult to fall below the 3/9 low.
The foreign exchange market and gold reacted remarkably. The technical analysis a few days ago has mentioned that after AUD fell madly against the dollar, it set a long lower tail on 3/19, technically forming the basis for the mean reversion. At present, there is policy support (that is, mass US dollar printing) to provide support. The US dollar will weaken in the short term, and you can long EUR, GBP, AUD, NZD.
Finally, after heavy policies of the Fed, the liquidity squeeze should be stabilized, and one of the indicators is that BTC has also started to rise. Therefore, the market has temporarily obtained some room to breathe, but still need to watch if it will turn to bulls. Now is near month-end, the market will begin to focus more on data. Long-term bulls have to wait. At least you need to wait until the economic data is bad but price keeps rising, or the epidemic eased. The short-term bulls may be able to grab a rebound, but the reaction should be quick, set both a profit-taking and stop and run quickly.
The reaction of the bond market was relatively calm. What is more paradoxical is that in the face of the huge amount of funds that Fed floods into the market, the interest rate rebounded after a small drop, and the US 10-year bonds yield fluctuated around 0.8%. Technically, the price would tend to narrow in the short-term, and I basically expect the interest rate to go down, but it would be difficult to fall below the 3/9 low.
The foreign exchange market and gold reacted remarkably. The technical analysis a few days ago has mentioned that after AUD fell madly against the dollar, it set a long lower tail on 3/19, technically forming the basis for the mean reversion. At present, there is policy support (that is, mass US dollar printing) to provide support. The US dollar will weaken in the short term, and you can long EUR, GBP, AUD, NZD.
Finally, after heavy policies of the Fed, the liquidity squeeze should be stabilized, and one of the indicators is that BTC has also started to rise. Therefore, the market has temporarily obtained some room to breathe, but still need to watch if it will turn to bulls. Now is near month-end, the market will begin to focus more on data. Long-term bulls have to wait. At least you need to wait until the economic data is bad but price keeps rising, or the epidemic eased. The short-term bulls may be able to grab a rebound, but the reaction should be quick, set both a profit-taking and stop and run quickly.
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