According to CME Fedwatch the odds of a rate cut in March jumped to 96.3% today from 8.9% a week ago.
Looking ahead to December, it’s highly likely at least two additional cuts are on the way.
December Rate Cut Probabilities
December Implied Rate Cuts Probabilities vs Current FF Rate
- At Least 2 Cuts: 96%
- At Least 3 Cuts: 77%
- At Least 4 Cuts: 40.6%
What’s Happening?
- Feb 19: Fed Minutes Highlight Coronavirus Concerns and Uncertainty 8 Times
- Feb 24: Bond Yields Crash and Gold Soars on Pandemic Threat
- Feb 25: CDC Admits Spread of Coronavirus in the US Appears Inevitable
- Feb 25: Lie of the Day: This is Not a Pandemic
- Feb 25: Nearly 50% Odds of “At Least” 3 Rate Cuts by December
- Feb 26: Trump says We are “Very, Very Ready for the Coronavirus, for Anything”
- Feb 27: Useless Act: California Monitors 8,400 People for Coronavirus; 33 Test Positive
- Feb 27: Containment Fails: Coronavirus Tweets of the Day
Rate cuts odds started rising before coronavirus threat materialized on news Largest Global Shipping Decline Since 2009.
Mike “Mish” Shedlock
I agree with Shamrock, not only will they do it prior to the 18th but it will be a half point cut. To wait, or to make it a mere quarter point cut would seriously risk being seen as weak and remaining behind the curve. If they are pressed into a cut they don’t want to make they will have little choice but to make it obvious they are willing to be ahead of the curve, anything less would backfire as too little too late. It could cause a serious and unstoppable collapse. In all it would be better to do nothing than to take any half measures.
Coronavirus Fears Are Driving Interest Rates Down, a Bad Omen for the Economy
Very low rates mean there is little room to maneuver if economic conditions get worse.
By Neil Irwin | Feb. 28, 2020
Is higher gold prices baked into the cake?
Down the line, yes. But short term cash will me more valuable. Also, gold held as downturn insurance will have to be flushed out, before it settles under new owners. Gold is a very safe long term bet at this point, but don’t expect it to rally until banks start failing 2008 style. We’re not there yet. Give it another 2 months.
Presuming that the market doesn’t rally today, and it just stays where it is at the moment, down 3.5% or worse, that will set up for an interesting day on Monday. Historically, the typical setup for a crash is to have consecutive down days on the week prior, starting from an extremely high level. Then, over the weekend, the people have time to look at what has happened to their investments, and consider taking action. At this point, I would expect baby boomers to be a bit touchy. They have their lifetime savings invested in the market, and with retirement at hand, they have no time left for their portfolio to recover if the market crashes. At 40 a down market is a buying opportunity. At 65, a crash is a disaster.
If baby boomers panic, and a significant portion of them decide to bail on Monday, we could see a crash. Consider that in 1929, after losing about 20% of it’s value in the prior week, the market dropped about 25% on Monday and Tuesday as panic selling was combined with margin calls.
Right now the market is off about 15% in the last week or so. Will that trigger panic on Monday, and drive another 25% drop, taking the Dow back to 19k? I have no idea, but it’s not out of the question. If it does, Tuesday midday is a historical time for a bottom, at least a temporary one.
I will make one prediction though. I predict that this weekend will bring a parade of talking heads, on every channel, and every news service, all urging people not to panic, to be calm, telling you that fears are overblown, the coronavirus is not that big a deal, the economy is sound, and this is a buying opportunity. Will people believe them, or will all those reassurances only make them more nervous? Only time can answer that.
It will certainly be interesting.
Even if this move indeed is “it”, I expect sharp rallies along the way.
Many forget that in October 2008 – amid the carnage – there was a day the Dow rallied almost 1000 points … and that was from a much lower level than current.
Was there a plunge protection team in 1929..?
Yes. In 1907 as well. From wikipedia: “With the bankers’ financial resources behind him, Whitney placed a bid to purchase a large block of shares in U.S. Steel at a price well above the current market. As traders watched, Whitney then placed similar bids on other “blue chip” stocks. The tactic was similar to one that had ended the Panic of 1907 and succeeded in halting the slide. The Dow Jones Industrial Average recovered, closing with it down only 6.38 points for the day. ”
A PPT action can temporarily lift the market by removing panic, but the action is only temporary. If it is an unjustified panic, it can be successful. 1987 was another successful example. However, in 1929, the crash was justified, so the carnage continued, not for days, but until the market finally bottomed many years later.
Is this a “justified” selloff, or merely a temporary panic?
And, not surprisingly, there was a very late rally so that the Dow didn’t finish very far down today. PPT in action? Or day traders closing positions, unwilling to risk holding them over the weekend? You decide. In any case, the market will resume Monday, and fundamentals will take over.
Fed is helpless…lipstick on a pig…band aid on an artery…one can seriously think that this was intentional on the Chinese behalf…their economy was tanking…and this was the way out…I know it sounds conspiracy theory but too many corporations were teetering on the edge this past reporting season…too much euphoria and buybacks…
Good! I feel so much better even if there’s airborne aids in the air.
At this point, does one or more rates cut make any difference !!! more of the same !!
More rate cuts puts conservative savers against a wall and moves to force them into equities, which is a controlled market.
When all you have is a hammer, everything looks like a nail. Lowering rates only penalizes savers when rates are arounfd 1%.
After a profound analysis and empirical socio economic research related to Mish’s carefully considered prophesy we came to a unanimous conclusion : YIIIIIIIIHAAAAA !
Permanently weak and pathetic economy that is totally dependent on money printing and govt checks,govt handouts,govt bailouts,govt subsidies,govt this,govt that, I seriously doubt ZIRP gonna do much if any good,maybe buy a few more months for stocks but not much else.
Today we had another 1,000 point haircut in the Dow so therefore a rate cut is needed. I own Microsoft which dropped $12 (or 7%) today to close at $158. Recent all-time high was $190. This is my best performer, bought at $26.45 in 2012. I’m still up 500%.
I’m taking the Alfred E. Newman approach, “What me worry”. Lol.
1000 points down is peanuts, especially taking into account that the recent 2019-2020 rally is based upon ….thin air and smug investors delusion! The DOW at 28K just because out of thin air created money’s cheap and abundant is insane ! Btw, if you bought Msft at 26$ you should ve sold by now, yet all you can come up with is that conservative savers should be totally wiped out in order to build yet another floor upon the decrepit house of cards built since the BFC…. Your avatar definitely suits you…
The smugness that Microsoft can’t fall 80% amazes me.
It can. It might.
I’m Not in favor of a rate cut. I was being facetious. That is not obvious in the wording.
Agree market has fluff, but what are options w Fed Reserve robbing savers.
I would not buy at today’s prices. I did say it was my best performer.
I do not see how the rate cut fixes the Coronavirus health crisis.
Many people are already heavily in debt, so you want to encourage more debt.
Whatever.
Personally, I’m doing more bargain hunting in the stock market. On Tuesday, I bought UPS at $97 (had been recently trading at $120). Today UPS dropped to $90, now an even better buy.
The market was/is in a bubble. It was looking for an excuse to fall. We’re in the first inning of a major economic disruption. Be careful.
Nikkei is down 700 points. I wonder if the Bank of Japan will cut rates to say -10% or so? Nothing makes sense anymore. If it was 1919 bond yields would be soaring!
Notice that the Shanghai still at 2900- 3000, Shanghai 50 around 2900, and the CSI at 4050 or so, same as it has been for about a year Yeppers… makes their people feel really, really “confident”.
Increasing case numbers will kick the bottom out of the service economy in the US, and the rise in cases outside the US will disrupt supply chains. The end effect is very high unemployment.
Lower interest rates will not restore health or supply chains.
I think there will be an almost revolutionary force of anger if the only apparent direction the government goes is to make the financial sector even more wealthy. This is how a socialist will win the election
Healthcare and minimum basic income–now whose platform is that?
That would be Bernie Bazooka!
I wholeheartedly agree.
Yep. A lot will happen between now and Nov. And those who think Trump will trounce Bernie may be in for a big surprise.
O.5% rate cuts at a time. Until…Yeah you guessed it; Negative rates. Throw in a QE V (or is it IV I lost count) and a $6 trillion FED balance sheet, we’ll finally be in a Japanese style decades long deflationary spiral. Heck, while the FED is at it, they might as well become the largest equity holder on the S&P 500. Isn’t Moneterism great!
We won’t go negative. Banks will go belly up.
They are already going belly up, where do you think QE4 has gone to? And yes, they deny it but the recent repo market interventions were QE4. HSBC and Deutsche are both absolute zombie banks and they are not the only ones on the list of 24 primary dealer banks to be near their end.
Amherst Pierpont Securities LLC
Bank of Nova Scotia, New York Agency
BMO Capital Markets Corp.
BNP Paribas Securities Corp.
Barclays Capital Inc.
BofA Securities, Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Credit Suisse AG, New York Branch
Daiwa Capital Markets America Inc.
Deutsche Bank Securities Inc.
Goldman Sachs & Co. LLC
HSBC Securities (USA) Inc.
Jefferies LLC
J.P. Morgan Securities LLC
Mizuho Securities USA LLC
Morgan Stanley & Co. LLC
NatWest Markets Securities Inc.
Nomura Securities International, Inc.
RBC Capital Markets, LLC
Societe Generale, New York Branch
TD Securities (USA) LLC
UBS Securities LLC.
Wells Fargo Securities, LLC
Go through the analysis of their books and at least 8 of them should have been liquidated/parted out already. HSBC and Deutsche are on total welfare and should have been dismantled as criminal organizations. Especially Deutsche which is the worlds largest laundromat for crime funds.
Anything to keep treasuries from inverting, right?
Thank goodness the Fed is hear to save us.
Can they print vaccine?
“Can they print vaccine?”
No.
But they can print enough to pump up the price of everything from lab space rents, to lab staff housing rents, to potential lab staff salaries, to salaries potential lab staff could instead be getting for doing utterly pointless makework in “finance” and “patent law”, to raw materials, to lab “asset values” making the lab a more attractive target for ambulance chasers etc., etc.; to ensure vaccine development is both much slower, and the resulting vaccine will be much more expensive, than what would otherwise be the case.
Almost forgot…the economy! I think every CEO/CFO in America is hoping they finally have cover for a kitchen sink quarter. They haven’t had one since Q1, 2009 and there’s a huge bag of trash being dragged along. If I’m right, they’ll all discover the need to write off billions…simultaneously.
This should allow the market to clear somewhere around 20,000, coronavirus or no.
Remember the Nikkei’s all time high of 46K ? Look where it stands now despite BOJ buying up the index , that s what a deflationary 0% interest rate environment does or should do to stocks…..I think the Dow s fair value is somewhere between 10 and 15K if common sense were still to reign…..
The only saving factor is the typical Japanese is way more fiscally conservative than Americans. When the Nikkei collapsed, the Japanese went into hibernation and started paying down their enormous debts. Won’t happen in the US. We’ll keep borrowing and hope we get bailed out at some point.
They’ll be cutting with extreme prejudice. They’ve probably been dusting off Benny’s bazooka for a week already.
A cut would be due to the plunging yield in the bond market. A rate cut for the purpose of stimulating the economy is meaningless if there is nothing to sell from China, and people are too sick to shop.
When your only tool is a hammer, every problem is a nail.
Oops! Houston, we have a problem, and I think I now see why China built the huge quarantine centers: The kits are useless. They have no options other than quarantine and isolation until they get a kit that works, ditto CDC… far too many false negatives, and positives to rely on current kits for managing the crisis.
If I take Jim Bianco’s current plot of total cases outside China, excluding the cruise ship, and project it forward at the 35.78% per day growth rate of the last five days, it will go from 2,603 on 2/26 to China’s current total of 78,630 in 12 days. That should probably roll off if outside China pays attention and takes it seriously.
I’d bet the Chinese trusted the kits early on and crammed tens of thousands together testing, blowing Rnaught through the roof before realizing what was happening.
The Fed will cut.It will be just as effective as the kits.
According to one savant I was corresponding to by email, and their point makes sense, you have to watch Covid-19 new infection cases per day for (1) non-China advanced countries, especially South Korea, and then (2) compare (1) to China’s early stage Covid-19 new infection cases per day.
Why? Because if China is cooking their Covid-19 numbers, then the new cases in (1) will not match (2), and if (1) > (2), given South Korea and advanced economies have better health care than China, it means China is lying about their numbers, and instead of 80k or so infected people it might be millions. So in short, watch this ratio (I’ve set up a spreadsheet). You can track the numbers here: link to gisanddata.maps.arcgis.com
Note the China cumulative numbers kinda, sorta, “look fake”, too uniform for my taste, and seemingly leveling off, and compare the early stage China numbers to today’s western country numbers (the latter are taking off).
Friday’s stock market should be interesting…PPT to the rescue?
Totally agree with your savant, been tracking the outside China by hand…duh. Your link makes me feel dumb, thanks.
If number of new daily cases are resource/testing constrained, they are going to look pretty uniform…..
Also, you can’t compare early response in China, when it was still uncertain exactly what they were dealing with, to full blown prepared and paranoid South Korea.
Third, Wuhan/Hubei may have hosted, and still be hosting once quarantines lapse, animal spreaders. Or if not today, perhaps next week. Or in two years… Wuhan/Hubei is it’s own world in this outbreak.
First, it was the original outbreak site. I haven’t seen anyone even attempt to guess how many zonotic (animal to human) events occurred there; nor over what timeframe; nor if they are still ongoing; nor how many animals were/are involved; nor how similar the different resulting viral genomes are; nor if one, or multiple different ones, look to be the source(s) of the infection(s) that are spreading wide….
Then, Wuhan/Hubei was locked down to a degree you are highly unlikely to ever see anywhere else. Where else do you expect New York sized cities to be completely shut down and quarantined? Half a billion people worth of such cities…. Then, the place was doused in enough disinfectant to rid Washington DC of roaches and leeches… Again, where else will that happen?
Not sure why anyone would try generalizing from that experience, to what is, and will be, happening anywhere else.
And honestly, not really sure where the obsession with trying to “prove” to the internet that “China is cooking numbers” stem from, either. Even if, for some completely unlikely reason, they were “hiding” 90% of what they know about the outbreak by now, what they don’t “hide” still amount to tenfolds what the rest of the world combined, knows.
Sounds so familiar, makes me wonder if the same people doing the computer models for anthropogenic global warming are also in charge of reporting Chinese infection and death rates. Naw, if they were it would have already been reported that everyone in China was already dead.
On the other hand Stuki, advanced western economies have this working against them; better news and media coverage so more people know there is a deadly problem, and they also have much higher mobility; when they get worried about virus in their county they can easily get on a plane or simply get in their car and leave. Spreading it as they do. And, China is a totalitarian place where censorship prevented a lot of panic, as well as a government that can and does simply shut down travel into and out of regions where virus has been reported. We at Mish have had years of experience looking at Chinese data, enough to know that you simply do not bet a single thin dime on any numbers they report, be that economic, social, or medical.
At the moment I believe that the China is trying to report their numbers honestly. At this point there is little to be gained from being dishonest, the blowback from being caught out lying is likely to be far worse to the leadership in China than admitting the scale of the problem. Best to keep an open mind though.
If China is being honest, then I think we have some cause for optimism. The number of new cases in China is flat, so it isn’t rising exponentially. The number of recoveries is increasing, and the warmer weather is getting closer. If we start to see new cases fall in China, then we can expect that other countries can copy China’s measures and see the same effect, amplified by coming of spring in the northern hemisphere at least.
If China has been misleading everyone, then we could be looking at a complete disaster. Bad information leads to people making bad decisions, which in this case could be a health and economic disaster.
China is trying get citizens to go back to work. Their economy will collapse if they fail. That’s a good reason to lie about the numbers.
But if they lie, and send people back to work, then they ARE going to fail.
Exactly – If they are lying, and the situation is not under control, and they open anyway, they will fail. That would be reminiscent of Mao’s great leap backwards. His people lied about how much food they grew, and they believed it, and the consequence was the death of millions.
“(2), given South Korea and advanced economies have better health care than China”
Is that a realistic assumption?
Wuhan: took delivery of an ADDITIONAL 81 ECMO machines on 20th January. The additional machines give 1 machine for every 185,000 citizens. We don’t know how many they already had. Note the date, too. That was over a month ago. Many thousands of hospital /quarantine beds built, hospital wards walled off to create quarantine wards.
UK: has 5 ECMO machines. 1 for every 1,360,000 citizens. Number of mothballed wards opened since this kicked off: apparently none. Number of new ECMO machines delivered: none.
They might do it before March 18.