As Australia’s financial system adjusts to the coronavirus (COVID-19), financial
regulators and the Australian Government are working closely together to help ensure
that Australia’s financial markets continue to operate effectively and that credit
is available to households and businesses. (Refer to earlier Council of Financial Regulators’ (CFR)
press release.)
Australia’s financial system is resilient and it is well placed to deal with the
effects of the coronavirus. At the same time, trading liquidity has deteriorated in some
markets.
In response, the Reserve Bank stands ready to purchase Australian government bonds in
the secondary market to support the smooth functioning of that market, which is a key
pricing benchmark for the Australian financial system. The Bank will also be conducting
one-month and three-month repo operations in its daily market operations until further
notice to provide liquidity to Australian financial markets. In addition the Bank will
conduct longer term repo operations of six-months maturity or longer at least weekly, as
long as market conditions warrant. The Reserve Bank and the AOFM are in close liaison in
monitoring market conditions and supporting continued functioning of the market.
The Bank will announce further policy measures to support the Australian economy on Thursday.
DFA is expecting a 0.25% rate cut, and formal QE to go alongside the repo operations already in train.
Chair Jerome Powell’s announcement this morning has spooked the US markets, with the futures price falling 5% and activating a trading halt.
The raft of announcements, which we have already covered has scared the markets, and it suggest a weak opening in the US later.
There are severe cracks opening up in the financial system, with treasury pricing haywire, the Feds initial massive repo sale under-subscribed, and direct liquidity support ineffective. Of course they want to shore up the financial markets, and he was at pains in the press conference (telephone) to underscore how well capitalised the banks are, and that negative rates are not coming.
Worth also noting the FED slashed the Interest on Excess Reserves that it pays the banks for parking their cash at the Fed to 0.10% effective Monday. Back in the heady days of 2019, the Fed paid the banks $34 billion in interest on reserves. This income just went away.
US Bank shares are under pressure. Here in Australia the Financials Sector Index is down around 4%, but rising from opening lows.
The market was 4% lower on opening today, despite the various actions from central banks and other regulatory agencies. We will see how things develop later as other markets open.
Jerome Powell Fed chair has been underscoring the resilience of the financial systems and the power of the tools available, though said the under-subscribed repo strategy they executed last week showed they needed to purchase securities direct but given the market reaction, they then needed to act aggressively to support liquidity beyond that. Hence the rate cut decision.
Australian equity markets have seen record
trading volumes in the last two weeks. ASIC, along with the other
Council of Financial Regulators agencies, have been closely monitoring
financial markets to ensure they remain fair and orderly. Australian
markets have been strong and resilient over this period, and this action
is pre-emptive and intended to maintain those high standards.
In addition to increasing volumes,
Australia’s equity markets have seen exponential increases in the number
of trades executed, with a particularly large increase in trades last
Friday, 13 March. While there was no disruption to market operations on
Friday, there was a significant backlog of work required to be
undertaken over the weekend by the exchanges and trading participants.
If the number of trades executed continues to increase, it will put
strain on the processing and risk management capabilities of market
infrastructure and market participants.
Accordingly, ASIC has issued directions
under the ASIC Market Integrity Rules to a number of large equity market
participants, requiring those participants to limit the number of
trades executed each day until further notice. These directions require
those firms to reduce their number of executed trades by up to 25% from
the levels executed on Friday. This action will require high volume
participants and their clients to actively manage their volumes. We do
not expect these limits to impact the ability of retail consumers to
execute trades.
ASIC will continue to closely monitor market conditions and take action where needed to ensure markets remain fair and orderly.
Given the current market gyrations, we are going to examine the latest critical data each day, because a week is a long time in politics but a lifetime on the markets at the moment…
The Dow plunged to its biggest-one day
percentage loss since October 1987 as fears the spread of the novel
coronavirus will pick up pace and usher in a global recession
overshadowed the Federal Reserve’s bold new stimulus measures to calm
funding markets.
The Dow Jones Industrial Average
fell nearly 10%, or 2,352 points, it worst one-day percentage drop
since Black Monday when it lost 22.6%. It was the fourth-largest
percentage drop for the blue chip index in history, rivaling those seen
in 1929.
The rout on Wall Street for the second-straight day comes as investors upped their bearish bets on stocks despite the Federal Reserve unveiling $1.5 trillion in fresh liquidity to combat “temporary disruptions” in funding markets.
The short-term pause in selling following the Fed announcement proved short-lived as investor sentiment on stocks continued to be swayed by the latest updates on the spread of Covid-19, which has killed nearly 5,000 people, with infections topping 133,000 worldwide.
In the U.S., where infections are feared
to increase in the coming weeks, state-wide bans on large gatherings to
limit the virus impact continued, with New York announcing announce a
ban on gatherings of 500 or more people.
The Fed’s announcement was unprecedented:
The Open Market Trading Desk (the
Desk) at the Federal Reserve Bank of New York has released a new
monthly schedule of Treasury securities operations and has updated the
current monthly schedule of repurchase agreement (repo) operations.
Pursuant to instruction from the Chair in consultation with the FOMC,
adjustments have been made to these schedules to address temporary
disruptions in Treasury financing markets. The Treasury securities
operation schedule includes a change in the maturity composition of
purchases to support functioning in the market for U.S. Treasury
securities. Term repo operations in large size have been added to
enhance functioning of secured U.S. dollar funding markets.
As a part of its $60 billion reserve
management purchases for the monthly period beginning March 13, 2020
and continuing through April 13, 2020, the Desk will conduct purchases
across a range of maturities to roughly match the maturity composition
of Treasury securities outstanding. Specifically, the Desk plans to
distribute reserve management purchases across eleven sectors,
including nominal coupons, bills, Treasury Inflation-Protected
Securities, and Floating Rate Notes. The distribution of purchases
across sectors will be the same distribution as the Desk uses to
reinvest principal payments from the Federal Reserve’s holdings of
agency debt and agency MBS in Treasury securities. The first such
purchases will begin tomorrow, March 13, 2020.
Today, March 12, 2020, the Desk will
offer $500 billion in a three-month repo operation at 1:30 pm ET that
will settle on March 13, 2020. Tomorrow, the Desk will further offer
$500 billion in a three-month repo operation and $500 billion in a
one-month repo operation for same day settlement. Three-month and
one-month repo operations for $500 billion will be offered on a weekly
basis for the remainder of the monthly schedule. The Desk will
continue to offer at least $175 billion in daily overnight repo
operations and at least $45 billion in two-week term repo operations
twice per week over this period.
These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak. Reserve management purchases into the second quarter will continue to be conducted with this maturity allocation. The terms of operations will be adjusted as needed to foster smooth Treasury market functioning and efficient and effective policy implementation.
Detailed information on the schedule of Treasury purchases is provided on the Treasury Securities Operational Details page.
Detailed information on the schedule and parameters of term and
overnight repo operations are provided on the Repurchase Agreement
Operational Details page.
Given the current market gyrations, we are going to examine the latest critical data each day, because a week is a long time in politics but a lifetime on the markets at the moment…
CME Group announced on Wednesday night it will close its Chicago trading floor in a precautionary move due to the coronavirus outbreak.
CME Group says its exchanges offer the widest range of global benchmark products across all major asset classes based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals. The company offers futures and options on futures trading through the CME Globex® platform, fixed income trading via BrokerTec and foreign exchange trading on the EBS platform.
The closing will take effect on Friday “at the close of business,” CME said noting that no coronavirus cases have been reported at the Chicago Board of Trade trading floor.
CME said floor traders in Chicago will receive an “additional q&a” on Thursday “related to the execution of certain floor products, procedures and protocols and other floor-related practices.”
Presumably trading will continue via electronic platforms despite the shut down of the physical floor, but speculation has been running about this.
CME’s announcement comes after several companies advised employees to work from home in an effort to prevent contagion from the virus.
This
would make CME the first major U.S. exchange to close a trading floor
due to concerns over the coronavirus. The New York Stock Exchange is
taking precautionary measures as well, working to separate traders and
other employees, according to a Reuters report citing an internal memo.
