–Fed Half-Point Rate Cut, G7 Statement Can’t Turn Stocks Positive
By Denny Gulino
THE WHITE HOUSE (MaceNews) – Tuesday’s next step into the unknown was accompanied by major moves, from the credit markets to the Federal Reserve, and meanwhile the testing kits necessary to gauge the spread of the corona virus are closer to wide distribution.
With 92,00 confirmed corona virus cases and more than 3,200 dead worldwide – now nine of them in the U.S. – reports from U.S. manufacturers are that 75,000 kits are being shipped out with the original promise of an eventual million tests still in effect.
In an evening briefing, Vice President Mike Pence said new guidance is being issued that any doctor can order a virus test regardless of the degree of symptoms being exhibited by a patient. Previously it was understood that testing was recommended only for those who had traveled to an area of the world where infection was prevalent.
Each kit can do several hundred tests. Until the Food and Drug Administration three days ago cleared the way for another 12 laboratories to distribute them, only two were doing it. One of the three reagents in the original kits could not be certified effective because of a “manufacturing issue.”. Two, however, would be enough to detect corona virus, the CDC had said.
Executives of laboratory firms have been summoned to a White House meeting Wednesday to discuss how test results can be quickly turned around from clinic to lab and back. Airline CEOs will also be at the White House to discuss current travel restrictions.
Health and Human Services Secretary Alex Azar, briefing reporters Tuesday evening along with Vice President Mike Pence and other members of the government’s Corona Task Force, said more diagnostic testing will discover more cases of the virus but thus far routine respiratory disease surveys have found no surges of the disease.
The NIH’s Anthony Fauci, the preeminent virus expert who also accompanied President Trump back to the White House after Tuesday afternoon’s presidential tour of his facilities, told reporters on the ropeline late in the afternoon that it will still likely take until next year to distribute an effective vaccine, but a potential winner is already beginning the very preliminary “phase one” evaluation stage. He repeated that later in Pence’s briefing, now being held on a daily basis.
“That next phase is a phase two trial,” Fauci said. “We’re not going to be able to start that for at least another three or four months after we go in. So the whole process is going to take a year, a year and a half at least.”
Two therapeutic medicines intended for those already stricken are also in the pipeline in China, he said. But thousands of cases have to be assessed to make sure it’s more beneficial than just standard care.
The Tuesday drop of the Dow industrials, of 786 points or 2.9%, did not take away all of Monday’s rebound nor did it seem so unusual after last week’s crushing moves down and that index is still ahead for this week. Yet it showed stock market participants are not assuming the day’s half-point Fed rate cut is any kind of antidote to the threats of demand destruction posed by a highly contagious “novel” illness and its potentially necessary “social distancing” that could eventually keep customers out of stores, restaurants and even out of the office.
Federal Reserve Chair Jay Powell made clear, in his brief post-decision news conference earlier in the day, that he does not think the emergecy rate move will work any miracles either. Yet he and his central bank colleagues hope it will prove to be more positive than negative for the future.
“We do recognize that a rate cut will not reduce the rate of infection, it won’t fix a broken supply chain. We get that,” Powell said. “We don’t think we have all the answers. But we do believe that our action will provide a meaningful boost to the economy.”
More specifically, he went on, the rate cut will “avoid a tightening of financial conditions which can weigh on activity and will help boost household and business confidence.”
The next regular Federal Open Market Committee meeting is set for March 17-18, when it would surprise no one should there be another rate cut.
The truly historic market moves of the day took place on the credit side where the Treasury 10-year yield slipped below 1% for the first time, accompanied by similar moves elsewhere on the yield curve. The consequent strengthening of Treasury security prices was impressive by any measure even though some analysts said it seemed the price rally has to be close to exhaustion.
President Trump’s long Twitter campaign of Fed criticism seems aimed at negative rates. He not only again tweeted his desire for still lower rates, despite the Fed half-point cut Tuesday, but told reporters in his first ropeline encounter of the day that the U.S., as the strongest country in the world with the currency that worldwide transactions depend upon, should have “the low rate” worlwide of any central bank. The German 10-year was at a minus 0.625% yield late in the day.
Trump also said he is disappointed the Fed did not explicitly signal that more rate cuts are coming.
Despite the presidential tweets and statements, Cleveland Fed President Loretta Mester told a London audience during the day, “We are not under a lot of political pressure.”
HHS’s Azar, when he accompanied Trump back from his NIH tour in the Marine One helicopter, told reporters the government experts are not attempting to extrapolate the number of Americans who may have been infected unbeknownst to the government since the first case in Washington State appeared and since the two new cases in New York State were discovered.
When mass testing of the public gets underway in a few days, there will be a better gauge of any “community spread,” the threat of which has the government already moving toward a “blending” of mitigation and containment that Pence announced Monday evening.
The Group of Seven statement summing up the conference call among the central bank governors and finance ministers that began the day had virtually no effect on markets, containing only a generalized promise of potential action.
“Alongside strengthening efforts to expand health services, G7 finance ministers are ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy during this phase,” the statement said.
The virus was not the only thing occupying the president’s attention Tuesday. He told reporters, “I spoke to the leader of the Taliban today” and, “We agreed there’s no violence. We don’t want violence we’ll see what happens.”
Trump opined that former Vice President Joe Biden had strengthened his campaign and that he would be watching later when California’s Super Tuesday returns are reported to see the extent. He repeated the “Democratic establishment” is trying to sabotage Bernie Sanders’ campaign.
Finally Trump put in a plug for a “middle-class” payroll tax cut he would be happy to sign if Democrats went along, not a likely possibility.
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Contact this reporter: denny@macenews.com