Nordea AM: The Fed moves aggressively
Nordea AM: The Fed moves aggressively
Sunday, the Federal Reserve (Fed) cut interest rates to zero and introduced a Quantitative Easing of 700bn. In a recent ‘The Week Ahead’ commentary, Sébastien Galy, Sr. Macro Strategist at Nordea Asset Management, discusses the consequences of the decision, as well as the next steps for the Fed this week:
“The consequences of this move are several folds: 1. If this is seen as a panic movements as restaurants are closed down in New York city, it will not help equity markets though it is a very positive development. 2. Banks will suffer from a very low and flat term structure though short-term they should benefit being long US Treasuries – a point the market will ignore. For European banks, the advent for US banks of holding companies with their own balance sheet and risk management for the end of 2020 in Europe means more business will go their way. 3. Foreign reserve managers should largely disappear from auctions with little impact as they let the maturity of their holdings go to cash to the benefit of Commercial Paper. We welcome the Fed’s move and expect this to continue at their next meeting while other central banks should follow to respond to this sudden stop event.
The Fed took the emergency measures it needed and has a few short days to decide on the rest. Bank of America wants a commercial paper facility a proposal which should have a good chance. Another possibility is a standing facility to lend to small caps which are unlikely to have access to Commercial Paper.”