The ECB announced a new quantitative easing program on Thursday (emphasis added):
This new Pandemic Emergency Purchase Programme (PEPP) will have an overall envelope of €750 billion. Purchases will be conducted until the end of 2020 and will include all the asset categories eligible under the existing asset purchase programme (APP).
(2) To expand the range of eligible assets under the corporate sector purchase programme (CSPP) to non-financial commercial paper, making all commercial papers of sufficient credit quality eligible for purchase under CSPP.
(3) To ease the collateral standards by adjusting the main risk parameters of the collateral framework. In particular, we will expand the scope of Additional Credit Claims ((ACC)) to include claims related to the financing of the corporate sector. This will ensure that counterparties can continue to make full use of the Eurosystem’s refinancing operations.
A central component of all these programs is they provide a massive liquidity injection into the economy at a time when consumers and businesses are scrambling for cash. While unexciting, it’s an incredibly important development.
Catherine Rampell notes the key differences between this slowdown and other recessions. Normally, the goal of fiscal stimulus is to encourage aggregate demand by giving people money to spend. This time, the policy goal is to provide bridge financing to people and businesses while activity shutters. That explains the bi-partisan support for direct income payments to individuals through payments and enhanced unemployment benefits. The other issue is giving short-term cash injections to businesses so they don’t shutter due to the massive drop in spending. She notes that some governments have already promised to essentially pay salaries up to a certain amount while employees are furloughed.
Unemployment claims are starting to spike. From the DOL:
In the week ending March 14, the advance figure for seasonally adjusted initial claims was 281,000, an increase of 70,000 from the previous week’s unrevised level of 211,000. This is the highest level for initial claims since September 2, 2017 when it was 299,000. The 4-week moving average was 232,250, an increase of 16,500 from the previous week’s revised average. This is the highest level for this average since January 27, 2018 when it was 234,500. The previous week’s average was revised up by 1,750 from 214,000 to 215,750.
Here’s the chart of the data from the report:Next week, expect a blowout in this number. On that matter, consider this chart from Ben Casselman:Let’s turn to today’s performance tables:The whipsaw action continues. Everyone with the exception of large-caps rose strongly. In the case of the smaller-caps, the gains were impressive. Micro-caps gained 6.45%; mid-caps rallied 4.46%; small-caps advanced 3.89%. The large-cap gains were less impressive, but positive nonetheless. Sector performance was very interesting. First, notice the large sell-off in defensive sectors: utilities dropped nearly 6%; staples declined 3.32%; health care was off 1.88%. At the other end, energy gained 6.8% in line with the large jump in oil prices. Consumer discretionary and basic materials also advanced.
The short-term charts are trying to stabilize. Let’s start with today’s SPY:Prices were lower at the open but crossed into positive territory after 10 AM. They more or less trended sideways for the rest of the day. Despite a minor drop at the end of trading, prices still closed in the green.Over the last five days, the SPY traded a lot between the 236 and 256 level. While there is still a modest downward slant to the chart, the 200-minute EMA trended sideways today. The QQQ had more of a sideways movement.
All of this is preliminary. There is still a tremendous amount of volatility in the market. However, considering the large jump in initial unemployment claims, today’s action can be considered a modest win.
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