Global markets tumble despite the Fed’s best efforts to restore confidence

Good morning, everyone. Buckle up. It’s looking like another historic trading week. If you were hoping the Fed’s Sunday surprise—an emergency rate cut to just above zero—would lift the markets, I have some bad news for you.

Let’s go right to the action.

Markets update

We start in Asia where China reported a bigger-than-feared collapse in industrial production and retail sales during the first two months of the year, an ominous sign of what the rest of the world could see as Covid-19 creeps westward. The major Asian indexes are all in the red.

Europe looks even worse with the familiar sectors—energy, financials and airlines—driving bourses lower. Europe’s flag-carrying airlines Air France-KLM, Lufthansa and AIG are all down significantly as global travel stalls and analysts are beginning to throw around the B-word (bankruptcies).

The U.S. futures, meanwhile, briefly hit their limit-down not long after the Fed’s rate cut decision yesterday. The Dow looks set to open 1,000 points lower, as I type.

It’s clearly a risk-on day. This morning, the dollar is flat, gold is up, and crude is down significantly. WTI even briefly fell below 30 bucks a barrel. Investors, meanwhile, are putting their spare cash into U.S. Treasurys and German bunds. The U.S. 10-year has a 0.75 handle, shedding 25 basis points since Friday’s close.

As for equities, Goldman Sachs offered some insight into where they might be heading. In a grim note to investors, it says the S&P 500 bottom could drop all the way down to 2,000 as GDP, and earnings, sink.

But the big story this morning is the Fed’s 100-basis point cut overnight. The size of the cut was more or less expected. But the timing—on a Sunday—might give investors an eerie flashback to September, 2008 when central bankers worked round-the-clock to keep the credit markets then from freezing up, and to save the biggest financial institutions in the world, while letting others collapse.

We’ve been stuck in a cheap-rates world ever since. Fed Chair Jerome Powell’s attempts to reverse course in 2018 are now history (see today’s chart).

***

The race to zero

The glass-half full view of the global economy goes like this: cheap interest rates and cheap petroleum are usually an ideal time to spend, invest and build for the future.

But the two have fallen so far so fast that it’s hard to focus on anything but the trigger: the collapse in economic activity caused by the coronavirus pandemic. Analysts at Berenberg call it the “lockdown economy” in which there are now over 100 million of us, from Los Angeles to my neighborhood in Rome, largely confined to our apartments and homes for the coming future.

“While these lockdowns last, they may well curtail economic activity by more than the Great Financial Crisis of late 2008 and early 2009,” Berenberg said in a note it published a few hours before the Fed rate decision.

This curtailment will lead to bankruptcies, job losses and recessions, the thinking goes. That is unless governments and central bankers take extraordinary measures. The Fed did just that on Sunday. We’ll get a verdict on that action from the markets shortly.

Postscript

I was staring blankly out the window of my apartment onto a dead-quiet corner of Rome early Saturday morning when my wife came into the kitchen. “You’d better go while you still can,” she said. There was a radio report that city officials would be locking down the big (gated) parks. If I was going to get one last spin in on my bike it had to be now. The Ministry of Fun and Leisure would not rob me of this moment of freedom, I vowed.

Minutes later, I was on my bicycle, solo, heading on a familiar route, towards the Appia Antica, the main southern route out of town as of the third century B.C.

You could describe the Appian Way as one of the world’s oldest supply chain lines, transporting people and materials south to Magna Grecia, the Greek-governed south of the country, and later, to its far-flung outposts around the Mediterranean.

Once you pedal past the early Christian churches, the ancient mausoleums and villas, the road gets wilder. I spotted beekeepers and two locals foraging for wild asparagus.

This is a road that’s seen all kinds of booms and busts—periods of great prosperity and deadly disease outbreaks—over the millennia. On Saturday, it was nearly deserted. In the still quiet (all of Rome is quiet these days) I couldn’t help but reflect on how this public infrastructure project, a true engineering marvel, is still such a vital piece of modern-day Rome. I love that it has the power to transport me to another place and another time. If only for a few hours.

There are similar such places all across this great city. I’m looking forward to getting out to fully exploring them again.

Have a good day, everyone.

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com

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Today's reads

Circuit breakers. Halting trade in the world's stock markets because of plunging share prices used to be a once-in-a-generation event. No longer. After U.S. stock trading was halted twice during last week’s coronavirus-inspired rout, Adrian Croft explains in Fortune why some analysts think stopping trade can fuel a market panic.

Warning sign. History shows that stocks make the wrong call on future recessions almost as often as they prove a bellwether. But in this coronavirus-driven selloff that's already infecting the economy's fundamentals with brutal contagion to come, the stock market is getting it right, says Fortune’s Shawn Tully.

Ray of hope. More optimistic than most, Morgan Stanley believes global financial markets are now in a bottoming phase, and investors should start to add risk and sell the U.S. dollar. “That’s not to say we’re ‘calling the bottom’ or we’ve seen the lowest prices in risk assets,” the bank’s strategists wrote. “But it is to say that we’ve entered the final phase of this severe, acute bear market.”

Market candy

Today’s quiz.

Which asset has dropped by 50% from its recent high?

• A: The S&P 500.
• B: Gold
• C: Bitcoin.
• D: Germany’s DAX blue-chip share index.

The answer is C: Bitcoin.

The cryptocurrency is currently trading at around $4,900, down from around $10,400 on Feb. 12. For the record, the S&P 500 is down nearly 20% from its February high, gold is down 8% from its March 9 high and the DAX is down 38% from its Feb. 19 high.