America’s economy remains strong — for now — but it’s hard to tell just how the shock might affect global supply chains, trade and ultimately economic growth.
Perhaps the most important question is one without an answer: how long will the outbreak last? Worldwide cases have surpassed 100,000 and spread to nearly 90 countries.
Amidst the onslaught of headlines on the virus this week US stocks traded so erratically that they gave investors whiplash.
The turmoil extended well beyond stocks.
US oil prices on Friday settled 10.1% lower at $41.28, the biggest one day percentage drop since November 2014. It was the lowest close since August 2016.
Bonds are also an expression of interest rate expectations, and fixed income investments are a traditional hedging tool when stock investments get hammered. All this contributed to the yield move.
And it didn’t stop there: the 10-year yield dropped below 0.7% on Friday, a fresh all-time low.
“The big question on every trader’s mind is when will yields stabilize,” said Edward Moya, senior market analyst at Oanda.
The central bank’s action hammered home that the Fed is willing to do whatever it takes to ensure that America’s expansion continues. Yet a surprise cut of this magnitude signals that the country might be in more dire straits than initially thought. With little economic data since the virus outbreak has gotten underway, it is hard to tell.
What’s different this time is that the issues originated not in the financial markets but in the real economy, said Lee Ferridge, head of macro strategy for North America at State Street. That’s why further rate cuts might not help, he maintained.
Still, Ferridge believes the central bank could slash rates as low as zero if cases of coronavirus in the United States continue to increase.