Central Banks Promising “Ample Liquidity” & to Use All Available Tools has the Dow Surging 800 Points & Bitcoin to $8,900

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After the biggest one-week sell-off since 2008 that involved The Dow Jones Industrial Average recording its worst one-day point drop in history, the Dow today jumped 800 points on the hopes that the Federal Reserve will act quickly to combat the economic slowdown from the coronavirus. The S&P 500 has also been up 1.8% so far in the day.

Alan Blinder, former Fed Vice Chairman said the Fed is committed to rate cut at its next meeting on March 17 and 18. Today’s bounce in the stock market however, means it is less likely that a move will come before that.

Meanwhile, President Donald Trump bashed the Fed for the nth time on Monday via tweet and argued that the central bank should cut rates “for all the right reasons.”

The Federal government has promised to “act as appropriate” as investors look to central banks for support. CME Group’s futures are already suggesting a 100% chance of a March rate cut.

It was during the 2008 crisis that the unscheduled rate cut happened. Goldman Sach economists are expecting the Fed to cut 100 basis points this year. As a result, US equity futures suggest solid gains as we have started to see already.

“If the Fed implements emergency cuts, I’ll be buying BTC for a trade. Uncorrelated, I know. I don’t care. It is evident BTC has traded like a risk-on asset in the last week. We are in uncharted waters. Past correlations do not matter much at the moment,” said trader and economist Alex Kruger.

Everyone Joins in

Beside the Fed, the Bank of England is promising to take “all necessary steps” to support the UK economy from the impact of coronavirus.

More importantly, the heads of the International Monetary Fund and the World Bank, in a joint statement pledged to use all their tools to protect the global economy.

“We will use our available instruments to the fullest extent possible, including emergency financing, policy advice, and technical assistance.”

Bank of Japan Governor Hauhiko Kuroda has also issued a statement that the central bank “will strive to provide ample liquidity and ensure stability in financial markets through appropriate market operations and asset purchases.”

As the coronavirus spreads globally, the concerns of destabilized financial markets to impact the economy negatively have also risen. As such, the BOJ governor released such a statement for the first time since June 2016.

Kuroda also said the bank will buy 500 billion yen worth of govt. bonds in another first since 2016. As part of its ultra-loose monetary policy, the BOJ has been already buying JGBs at a pace of 80 trillion yen a year and ETFs 6 trillion yen a year.

Central banks’ move warrants “opening some BTC longs not far from here, to have some exposure. 8400 looks solid if panic can pause for another day. Short-term only for now,” said Kruger.

In response, Bitcoin has started surging as well, up 4% in the past 24 hours going as high as $8,920 on Bitstamp.

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