Stocks tumble after Fed Chair Powell warns coronavirus could scar economy

Daniel Fowler
May 13, 2020

The S&P 500 and Dow Jones fell shortly after the open on Wednesday as Federal Reserve Chairman Jerome Powell warned of a prolonged recession due to the coronavirus and dispelled speculation over negative interest rates.

In a bullish development for the whole precious metal segment, gold continues to stay above $1700 per ounce.

President Donald Trump on Tuesday again urged the U.S. central bank to adopt negative interest rates.

On Thursday, the fed funds futures market priced in slightly negative rates starting the fall; the the market has since reversed some of the implied negative rates for fall and winter of this year, April 2021 futures still price at -0.01%.

The S&P/TSX Composite Index was flat, the S&P 500 fell 0.2 per cent, the Dow Jones Industrial Average shed 0.4 per cent of its value and the Nasdaq Composite Index was up 0.1 per cent. Investors initially piled into the safety of USA treasuries, sending yields lower to about 0.65 per cent.

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Trump has been calling for a cut to the tax, which is paid by employers and workers and funds Social Security and Medicare. Still, "Nobody knows for sure if it's going to work", he said.

An estimated $15 trillion worth of stimulus has already been unleashed by central banks and governments to shield their economies from the coronavirus pandemic.

Oil prices were little changed, with USA benchmark West Texas Intermediate up about 0.6 per cent to trade at US$25.90 per barrel.

"But the coronavirus crisis raises longer term concerns as well", Powell said in a live-streamed address hosted by the Peterson Institute for International Economics.

The New Zealand dollar slumped 0.9% to $0.6018 against the USA dollar after the central bank expanded asset purchase to NZ$60 billion from NZ$33 billion while its policy minutes said that negative interest rates were a future option. Highlighting investor appetite for the bullion, SPDR Gold Trust holdings, the world's largest gold-backed exchange-traded fund, rose 0.24 percent to 1,083.66 tonnes on Tuesday.

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