Financial markets: the United States takes action, as it prepares for virus to hit peak

On Sunday nights, major news is usually announced before the opening of the Asian markets and stock exchanges. On 15 March, the U.S. Federal Reserve announced that it will cut rates for the second time in one month. Interest rates are now at 0%, which is a historic low. One might think that this is the end. Unfortunately not, with viral infections in the United States now exceeding 4,000, the government and the Central Bank have been struggling to find answers to stop the spread, but also the panic that the spread is adding to the markets. In addition to the rate cuts, it was also announced that the FED would re-launch its asset purchase program, better known as Quantitative Easing, with $700 billion printed.

What are the markets doing?

Although it seems like a lifetime ago, it was only 2 weeks ago that the markets reacted with panic as soon as the FED announced that it was making an emergency rate cut for the first time since 2009. In the end, we saw this reaction repeated in the hours leading up to Sunday's announcement. Most of the major U.S. indexes fell by at least 4% on the futures markets. These included such major indices as the S&P 500, the NASDAQ and DOW Futures.

What many are waiting for now is the reopening of the cash markets to see if the panic we saw will be reflected in the future. Many believe that the panic could continue and that a 12% correction could be applied. This figure is critical because it will automatically trigger what is called a "limit down" order. A limit down order is essentially when a market ceases to function due to losses reaching a level that the stock exchange deems chaotic enough to interrupt trading. There is usually a pause before trading resumes. Over the past few weeks we have seen many of these orders executed in the United States, and with the latest news, we could see many more in the days and weeks ahead.

Government policy

From a political point of view, we saw Donald Trump announce that they were going to declare a general state of emergency. This means that flights within the country will be extremely restricted, with the United Kingdom joining all the other European countries that are denied access to the United States. In addition, it has been announced that "social distancing" will be the new norm, as some industries will be closed down to help stop the spread of the virus. These include concert venues, movie theaters, diners and drinking establishments.

This action comes at a time when the United States has been criticised for what many see as a slow acceptance of the seriousness of the virus situation. The question does not seem to be whether or not the powers concerned will take the problem seriously. However, it is a question of how far they will decide to go in finding potential solutions to the greatest threat to global health in 2 generations.