The Federal Reserve’s announcement of a new round of quantitative easing sent shock waves through the markets on Thursday. The Dow Jones Industrial Average and the S&P 500 both dropped, giving the bears the upper hand in the battle between bulls and bears.
Investors reacted to news of the Fed’s decision to expand its balance sheet by pumping $40 billion dollars into the economy a month by buying mortgage-backed securities (MBS). The US central bank said the move was necessary to support the American economy, which has been hit hard by the pandemic and ensuing recession.
The blow-off top that formed on Wall Street sent shockwaves to other markets, including the commodities market. Oil prices crashed close to a fifth of pre-announcement levels as traders anticipated lower demand from a doubly hit economy. Gold prices plunged over 6.6% as investors thought the Fed’s move would diminish the attractiveness of the safe-haven asset.
Bond investments were also hit hard by the Fed’s announcement. Yields on US Treasury bonds rose as investors feared inflation in the future. There was some counter nail-biting as the yield on longer-dated bonds came down from pre-announcement levels.
The US dollar was also affected by the news, as it weakened against other major currencies. Investors moved into safe-haven currencies such as the Japanese Yen, the Swiss Franc, and the Gold Krugerrand, driving up demand for these commodities.
The Federal Reserve’s announcement to expand its balance sheet and help stabilize the economy sparked a wave of market volatility on Thursday. The Fed’s move caused a blow-off top in the financial markets, with riskier assets taking the biggest hit.
The news also caused a domino effect in other markets, including commodities, bonds, and currencies. While none of these moves were good news for investors, they could spell good news for the US economy in the medium to long term. Only time will tell if the Fed’s move will be the catalyst for a more sustained recovery.
“Market Buzzing Over FED’s Blow-Off Top?!
