Good morning!

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On Sunday, the Federal Reserve cut interest rates to zero and announced a $700 billion QE program, alongside other measures.

The markets are taking it as a sign to get worried. US equity futures are currently trading limit down. We are primed for another week of volatility in the markets.

I'm a little overwhelmed with all of the news at the moment. It's hard to know where to begin.

To put some order on proceedings, here are the broad topics around which I'll organise this report:

  • Macro news flow
  • Airlines
  • Leisure stocks
  • Small-caps

These are exceptional circumstances, so I think it's reasonable to devote portions of this report to areas it would not normally cover (which Paul has been doing, too!)

Large Cap View - I have written another article with a large-cap focus, this time the headline is:

FTSE-100 Yields Go Through the Roof

It's fairly self-explanatory. Looking at the yields on offer in the FTSE-100, I examine whether there is some value to be had in the blue-chips!

Macro news flow - more pain for investors

I made some comments last week about Mark Carney's interest rate retreat at the Bank of England.

Central banks are coordinating their actions and now the US Federal Reserve has cute its main benchmark rate, the federal funds rate, to near-zero.

This is a huge rate cute of an entire percentage point, in one move. Unscheduled, emergency rate cuts in the past have typically been 50 or at most 75 basis points (i.e. 0.5% or 0.75%).

The radical announcement has been accompanied by other major new policies:

  • The Fed is going to buy an extra $700 billion in Treasuries and mortgage-backed securities.
  • The rate at which banks can borrow directly from the Fed has been slashed by 125bps, almost to zero.
  • Bank reserve requirements are now zero, i.e. they don't have to keep a certain amount of customer deposits at hand and there is no limit to the amount they can lend.
  • Cooperating with other central banks, the rate on international dollar "swap" loans has been lowered.

From CNBC:

The actions by the Fed appeared to be the largest single day set of moves the bank had ever taken, mirroring in many ways its efforts during the financial crisis that were rolled out…

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