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

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 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.

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.

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.