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The FED goes into “risk management” mode, cuts by 1%! (Monday, March 16, 2020)

Stock markets and the dollar fell heavily on Monday, after emergency rate cuts in the United States and New Zealand failed to allay fears about the coronavirus' economic shock. U.S. stock futures hit their down limit before daybreak in Singapore. The dollar sank more than 2% against the yen.

Nikkei futures fell 6%. Australia's benchmark stock index fell 7% in the first quarter-hour of trade. U.S. crude fell 5% to under $30 per barrel. The US Federal Reserve cut interest rates by 100 basis points on Sunday to a target range of 0% to 0.25%. It said it would expand its balance sheet by at least $700 billion in coming weeks.

The Fed's move on Sunday U.S. time was likely aimed at staving off what had the potential to be another volatile week in financial markets However, U.S. stock futures plunged after the rate cut, suggesting investors remain nervous. Later on Monday, China will release several important economic indicators that should reveal the scale of damage caused by coronavirus, which emerged in the central Chinese province of Hubei late last year. The Fed was originally scheduled to announce a policy decision on Wednesday, and the BOJ holds a two-day meeting ending Thursday, and the pressure has been on central banks to do something to restore calm to financial markets. Worries that travel restrictions and factory closures aimed at containing the coronavirus will cause a global recession have sent equities into a tailspin. In the offshore market, the Yuan edged up slightly to 7.0131 per dollar as traders awaited key Chinese economic data.

New Zealand's central bank also slashed interest rates by 75 basis points, sinking the country's currency, as it prepared for a "significant" hit to the economy.

U.S. Treasuries futures jumped more than a full point. E-mini futures for the S&P 500 index dropped 4.77% to their daily trading limit outside the United States. Lockdowns and travel bans spread across the globe over the weekend, affecting tens of millions of people.

Five other central banks also cut pricing on their swap lines to make it easier to provide dollars to their financial institutions facing stress in credit markets. The swap lines were set up by the Fed, the Bank of Canada, European Central Bank, Bank of England, Bank of Japan and Swiss National Bank in the financial crisis.

They also agreed to offer three-month credit in U.S. dollars on a regular basis and at a rate cheaper than usual. The move was designed to bring down the price banks and companies pay to access U.S. dollars, which has surged in recent weeks as the pandemic spooked investors.

U.S. President Donald Trump called the move "terrific" and "very good news". Along with the New Zealand cut, and Australia's central bank poured $3.6 billion in liquidity into Australia's financial system. In currency markets, the dollar dropped 1.7% on the Japanese yen to 106.01, while the euro climbed 0.5% to $1.1168.

The risk-sensitive Australian dollar fell 0.25% to $0.6182 while the New Zealand dollar slipped 0.1% to $0.6048. Oil prices fell about 5% and gold rose. Brent crude dropped $1.80 to $32.03 per barrel.