Central Bank Stimulus

Fed fires up, again

More stimulus

The U.S. Federal Reserve announced it would start buying individual corporate bonds. The Fed said, ‘it will purchase corporate bonds to create a corporate bond portfolio’.

The Federal Reserve is stepping things up again after recent comments left investors more than a little concerned about the pace of recovery. The Fed has stated that it remains concerned about the economy suffering a protracted downturn and the latest endeavour is to start the purchase of corporate bonds. Monetary and fiscal stimulus riding to the rescue again. 

Encouraging news

Investors are, as always, encouraged by the prospect of further central bank stimulus. The Fed’s decision to buy individual corporate bonds and Trump’s plan for a $1 trillion infrastructure package continue to help lift sentiment.

A well timed increase in U.S. retail sales of 17.7% has helped too, but bear in mind that rebounds are to be expected.

The announcement of a ‘major breakthrough’ treatment for serious cases of coronavirus has also helped lift market sentiment when it was widely reported that UK scientists discovered that a cheap (off-the-shelf) steroid, Dexamethasone, proved very useful as a treatment for severe cases of covid-19.

And, AstraZeneca reported it will have a vaccine ready by October 2020 that will protect people for one year, assuming a positive outcome from ongoing trials. This is very positive news.

Markets not overly concerned?

As stocks continue to recover from the sharp pullback of last week, investors appear content to shrug off fears of a ‘second wave’. They do this as we see cases in the U.S. and around the world continue to rise, including a fresh outbreak in Beijing that has prompted the Chinese authorities to introduce new restrictions.

Is the U.S. so heavily focus on re-opening the economy that it will move forward regardless of new coronavirus cases? Probably. It is election year and Trump has much ground to cover before November.

Markets also seem unconcerned by a confrontation between India and China that left several military personnel dead on both sides. And of North Korea reportedly blowing up a liaison office near the border.

Markets appear undeterred as it cherry picks its way forward. Good news is welcome in these difficult times such as vaccines and drug treatments and we celebrate this, but world economies have a very long journey back to pre-pandemic times, and this will not be easy.

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