Fed cuts interest rates again
Overnight the Fed cut its interest rates again and also implemented quantitative easing by increasing bond purchases. Instead of reassuring the market, it seems like the Fed has spooked everyone that the downturn will be prolonged.
The STI stocks are down, REITs are down even more. This is interesting because REITs are leveraged vehicles and a lower interest rate typically tends to be a positive for REITs. Instead, some of the biggest losers today are REITs, MLT and Lendlease are down 16%, even the usually resilient Keppel DC REIT is down 13%. One possible thought could be that as the Fed implements QE, funds should go into fixed income to ride the yield compression. Another reason for the decline in markets could be that everyone is thinking now that the Fed has done this, they are out of bullets. QE can still be done but it is unsustainable, rate cuts can still occur but does the Fed really want to go into negative territory?
Objectively speaking there should be some sort of retracement tomorrow as people go in for bargains. But given how the situation is in western countries, we may not have seen the bottom yet.
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