FTSE 100 Recovers Modestly After Fed Committed to Unlimited Bond-Buying

FTSE 100 Recovers Modestly After Fed Committed to Unlimited Bond-Buying

  • Federal Reserve announced new unprecedented stimulus measures to help the falling economy
  • Germany has increased its stimulus package by more than €150 billion to over €750 billion
  • European stock turn higher, FTSE 100 erases around 3% of its earlier losses

Equities are trading higher across the globe after the Federal Reserve said it will purchase unlimited amounts of the government-backed bonds, while Germany announced an increase to its €600 billion stimulus package.

Fundamental analysis: Central banks unleashing a new level of stimulus

The Federal Reserve announced this morning an unprecedented stimulus package to support the falling economy. The Fed committed to unlimited asset purchase to provide the administration and businesses with the necessary liquidity.

“The Federal Reserve is committed to using its full range of tools to support households, businesses, and the U.S. economy overall in this challenging time,” the Fed said in the statement.

“Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate”.

The aggressive buying of government-backed bonds has no limits at this stage. With this move, the Fed has practically taken out all the risk for banks and lenders.

“This is Jay Powell’s [Fed Chairman] ‘whatever it takes’ moment,” said David Wessel, head of the Hutchins Center on Fiscal and Monetary Policy at Brookings.

Elsewhere, Europe’s economic giant Germany provided additional €156 billion in funds to support the falling economy, in addition to the previously announced €600 billion.

The government will have €100 billion to use at its disposal to potentially acquire stakes in different companies, while €400 billion is allocated to the state development bank KfW, to provide businesses with guarantee loans.

Technical analysis: European equities recover modestly

As a result, European equities have modestly recovered and erased most of their losses from this morning. Germany’s DAX is up nearly 2%, while the FTSE 100 is now down 2.5% after being down more than 5% this morning.

Still, the FTSE 100 looks like it wants to go lower as the initial bounce is already fading. At this stage, it seems that investors are simply ignoring all actions from central banks as they, currently, see no light at the end of a tunnel.

“Countries across the globe adopt increasingly stricter measures to stop the spread of coronavirus. These very measures are threatening to overwhelm central banks’ efforts to cushion the economic fallout from coronavirus, increasing the prospect of a deep global recession,” said Fiona Cincotta, analyst at City Index.

FTSE 100 hourly chart (TradingView)

The price action is trading within a triangle near the lows. A break of this channel to the downside would open the door for a test of the key support near the 4,800. On the upside, the bulls need a breakout above 5,500 to feel more confident.

Summary

European equities have recovered portions of the earlier losses after the Federal Reserves committed to unlimited buying of government-backed bonds. Moreover, Germany has further increased its stimulus package from €600 billion to more than €750 billion to fight the economic crisis triggered by the coronavirus outbreak.

By Michael Harris
I began trading in my early 20's at a local company and since then have combined my knowledge and love of content to become a news writer. I am passionate about bringing insightful articles to readers and hope to add some value to your portfolios!

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