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Stock Exchanges: Will Fed Really Challenge The Coronavirus?

The latest updates, tourism alert

Yesterday’s bulletin seems slightly more encouraging, 4,400 new infections that is less than half of what happened the previous day but which still increase the figure of infection to about 75,000 cases, with 2,000 deaths. Even in the cruise ship held blocked in Japan, some passengers begin to disembark once the incubation period has passed without signs of the epidemic being detected, as well as in Italy 20 Chinese tourists hospitalized at Spallanzani’s hospital have been discharged.

In the meantime, Airbnb has announced that the suspension of reservations in China will be extended until May, with reimbursement for passengers who have already made flight reservations. The loss for the travel company caused by the coronavirus was considerable, according to the Wall Street Journal, which in all probability will lead the company to postpone its listing on the stock exchange.

The whole world of tourism is affected, however, there are cancellations of flights to and from China from Japan, South Korea and the United States. Demoskopika, a company specializing in surveys, predicts that the damage to tourism this year will amount to over $ 4 billion, worse than what happened in 2003 with Sars.

The coronavirus and the markets

The slight slowdown of the disease always puts financial markets on alert, which do not forget that in the epicenter of the spread of the virus there is a city, Hubei, which is literally paralyzed. The greatest reflex occurs in those safe-haven assets such as the Swiss franc which is pressed by the market on the steel support of 1.06 against the euro, the decisive break of which could open disturbing scenarios for the cross and like gold. which remains at high levels, hovering around $ 1,600 an ounce. What about stocks? For the moment, the stock markets are not suffering much, but the danger that the situation gets out of hand is always around the corner and it will probably be Wall Street that will magnetize all the stock exchanges in one direction or another.

What will the Fed do?

In the last hearing of Fed Chair Jerome Powell in the Chamber it was communicated that the central bank is willing to reduce the repurchase agreements that it has put in place so far to favour the short-term interbank system, but the latest data, however, tell us that the request for liquidity is still very high and in March, when the disease is likely to reach the most critical level, a decrease in the Fed’s attention in this sense could be detrimental to stock prices given the close correlation between exchanges and transactions REPO of the central institute.

We will also have to evaluate all the Leveraged Loans discourse that institutional investors are convincingly disposing of. Will the presence of the Fed be fundamental to prevent the outflow from destabilizing the liquidity system on the markets and creating turbulence in the stock indices? The junction of these points will tell us with some reliability whether prices will be sustained for a long time or a greater balance will be created between the prices of safe-haven assets and of equities.

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Michele Morgante
Bussines Development