Powell Not to the Rescue

The Fed’s 50 bp rate cut fell flat, because by making it a surprise, it was perceived as an “emergency cut” and a “Powell virus warning.” Powell’s bedside manner was nervous and evasive, leaving investors focused on the straw man argument that a rate cut can’t cure Covid-2019, and ignoring that it does ease financial conditions that have become tight. The G7’s statement was a hollow gesture, but it could have been nothing else. Actions will be up to individual countries, where we expect fiscal stimulus programs to be announced in the coming days; in the US it will become an election-year bidding war. OPEC hinted it will cut production significantly on Friday. Subjectively, these moves failed to restore confidence, but every one of them is an objective positive. We think the astonishing new low yesterday for the 10-year yield was a bottom, and remain comfortable averaging into equities.