US markets open up following Fed’s $1.5tn capital injection
Federal Reserve Bank of New York injects cash into money markets
US stock markets have opened up in Friday trading, following the Federal Reserve Bank of New York’s announcement of $1.5tn (£1.2tn, €1.35tn) in capital injections.
The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite Index all fell by more than 8 per cent in Thursday trading and have all dropped between 23-25 per cent in the past month alone due to the Covid-19 crisis.
Following the New York Fed’s decision, by early-morning trading all three leading indices have gained by around 3 per cent.
The New York Fed has made three tranches of $500bn available. The first tranche, a three-month repo operation, was provided late on Thursday, March 12, while the second and third tranches have been introduced today.
The American banking sector has struggled with intermittent liquidity problems since September 2019 with the novel coronavirus only worsening the situation.
In a statement the NY Fed observed: “These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak.”
Notwithstanding the immediate gains triggered by the stimulus packages implemented across the developed world, there is uncertainty as to the efficacy of central banks when dealing with effects of a global pandemic.
At most it would appear that such major interventions have been able to stem, rather than turn back, the downward flow. Despite a larger than expected rate cut of 0.5 per cent by the Federal Reserve last week, American markets continued to tumble as the coronavirus spread and further travel bans were put in place.
Nonetheless, it would appear that after a week of heavy losses and despite the virus’s continue spread, both European and North American markets will close up in Friday trading.
After the European Central Bank (ECB) announced its own major stimulus package, major European indices are trading up between 4-5 per cent.