Following what may have been the most drama-filled weekend since “Lehman Sunday”, in which we saw not only another major spike in covid cases around Europe and the US, but also the total collapse of OPEC after Saudi Arabia unilaterally decided to flood the market with deeply discounted oil in a desperate attempt to crush the competition (yet which may backfire and soon lead to riots in Riyadh), markets are reacting appropriately and just like during Lehman Sunday, everything is crashing:
- S&P emini futures are down more than 4% in early trading, plunging as low as 2,845 and fast approaching their limit down price of 2,819 as investors around the world puke risk in an unprecedented fashion.
What happens now? Well, earlier today Morgan Stanley said that to stabilize markets, the Fed would need to announce not only a rate cut but also resume official QE…
We believe equity markets will struggle until policy-makers get back ahead of the curve with more interest rate cuts and an extension of the current balance sheet expansion and/or an official quantitative easing program – something we think is likely coming
… and with spot VIX likely set to trip 60 or more, the Fed will need to do something or risk another Great Depression, although how sending nominal bond yields into negative territory across the board will help markets remains to be seen. Maybe the Fed’s time has finally run out?
Or maybe Trump – who provoked the market gods one too many times with his relentless stock market boasts as stocks hit artificial high after artificial high – actually has something up his sleeve, because moments after futures opened, he tweeted a rather cryptic “nothing can stop what’s coming.”