Stocks were under pressure early from the OECD’s forecast that global 2020 GDP will contract -6.0%, and by an even larger -7.6% if there is a second pandemic wave.
Comments from the top U.S. infectious disease expert, Anthony Fauci, weighed on the overall market when he called the coronavirus his “worst nightmare” and warned that the pandemic is far from over. The coronavirus pandemic continues to dampen the U.S. and global economies. Confirmed cases of the virus have risen above 7.344 million globally, with deaths exceeding 414,000.
Stock prices whipsawed after the post-FOMC announcement Wednesday afternoon. The FOMC said the economy faces “considerable risks” over the medium term. All FOMC members said they expect the fed funds rate to remain near zero through the end of 2021, and all but two members expect the fund’s rate to stay there through 2022. The Fed said it will purchase about $80 billion a month of Treasuries and $40 billion of mortgage-backed securities “to support the flow of credit to households and businesses.”
The Fed’s new economic projections were bearish for stocks. The Fed projects that U.S. 2020 GDP will contract by a range of -7.6% to -5.5% versus a Dec estimate for expansion of +2.0%/2.2%. The Fed estimates the U.S. 2020 core PCE at +0.9%/1.1%, down from a Dec projection of +1.9%/2.0%.
Soft global inflation pressures are dovish for the world’s central banks and are supportive for stocks. The U.S. May core CPI eased to a 9-year low of +1.2% y/y, weaker than expectations of +1.3% and down from April’s +1.4%. Also, China May CPI rose +2.4% y/y, weaker than expectations of +2.7% y/y, and the slowest pace of increase in 14 months. Also, Japan May PPI fell -2.7% y/y, weaker than expectations of -2.4% y/y and the steepest pace of decline in 3-1/2 years.
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