Investor sentiment remains mixed in Europe with most benchmarks trading around their neutral zone. This may be a surprising trading stance from investors following yesterday’s monetary shock from Jerome Powell, with the Fed taking the decision to proceed with a half a basis point rate cut, but today’s price variations tell us another story. Such a dovish decision should have strongly boosted market sentiment towards risky assets, but it seems that investors were hoping for a more globally coordinated response to the coronavirus crisis.
In addition to the lack of coordination, traders were also expecting stimulus on the fiscal side which, according to French Finance Minister Le Maire, would be stronger than any monetary boost. There is a possibility that investors saw the Fed’s decision as more political than anything else: lower rates means a weaker US Dollar, and this should have a positive impact on US exports. This is exactly what President Trump wanted, especially ahead of the next Presidential election where he will have to show the decisions he took during his mandate were in the US interest and sustained the domestic economy.
Photo by Library of Congress
However, investors will now wait for the ECB’s move, with the central bank having already announced a monetary response was “not on the agenda”, meaning Christine Lagarde is likely to work on set of fiscal measures with rates already in negative territory in the eurozone. The best performance so far comes from Zurich with the SMI-20 trading well above 10,000pts. A clearing of resistance at 10,190pts could extend the current rally higher while 10,15pts remains the major support.
