The good news is that the Chinese killer virus outbreak won’t last long. Because of that, economists predict a “short, sharp, shock” followed by a quick recovery. The numbers have been in free fall since coronavirus fears pushed the stock market off a cliff. It didn’t come as any surprise when the safety circuit breakers popped shortly after Wall Street opened trading Monday morning. There’s no need to panic, the experts assure.
Only a short, sharp, shock to the economy
Things are bad, but it’s not like the 2008 nightmare. Barack Obama’s not pretending to be president anymore. “The so-called Great Recession was characterized by a grinding recovery as households and banks slowly got back on track,” CNN writes.
Under President Trump, the pain will be short lived. Temporary effects of the Kung Flu are “expected to give way to a speedy rebound once the outbreak is brought under control.”
The “shock-waves” that short-circuited the financial markets Monday morning were made even worse by a “historic” collapse in the price of oil. Traders frantic to sell stock short got so intense that “circuit breakers were triggered, forcing a 15-minute trading halt on the New York Stock Exchange.”
Everyone headed for the coffee pot. When they got back, “stocks rebounded from session lows following the rare trading pause.”
A global recession has already started, economists say. Morgan Stanley’s Chetan Ahya thinks global growth will receive a “sizable shock.” How bad it gets depends on the response. Another big factor is how many people need to undergo mass quarantine around the world.
Neil Shearing notes that even the worse case models show a short contraction in the economy. The group chief at Capital Economics sees a “sharp but probably short recession” as the worst case scenario. “The outlook is unusually uncertain but our sense at this stage is that this is most likely to be a short, sharp shock,” Shearing insists.
President Donald Trump is to sit down with Treasury Secretary Steven Mnuchin and other economic officials to kick around policy ideas like paid sick leave. Bailouts to the airlines and other affected industries are also on the table.
Fed prescribes cash transfusion for Wall Street
The New York Federal Reserve has the remedy for ailing market indexes, a quick injection of cash. The fed already started pumping “tens of billions of dollars of extra cash into the financial system.” That should help it to handle the shock as the entire planet calls in sick.
Another dose of cash comes from a decision to “more than double” repurchase agreements, which is a way for the central bank to ease pressure and add liquidity “by purchasing Treasuries and other securities.” Together, the measures “should help support smooth functioning of funding markets.”
Instead of waiting for a crisis and then responding, the Fed is trying to get out in front of this one. “The Fed wanted to send a signal that it sees what’s going on in markets and is being responsive,” said Mark Cabana, Bank of America’s head of US rates strategy.
If somebody farts in some far off land the children that run the markets sell off. Ant the rest of the sheep follow.