Fed's Regulation to Battle Market Fallout



In response to the global condition, on Monday (3/23), The Federal Reserve (Fed) launched a barrage of programs aimed to help markets function more efficiently amid the coronavirus crisis. Fed plans to purchase corporate bonds, encompassing investment-grade securities in primary and secondary markets through exchange-traded funds. Subsequently, a $300 billion program will be enacted to support the flow of credit to employers, consumers, and businesses, along with two facilities to provide credit to large employers. The program will also aim to support lending made to eligible small-and-medium-sized businesses, complementing efforts done by the SBA. Last, the Fed announced to buy $500 billion worth of Treasury funds and $200 billion in mortgage-backed securities. On the other hand, this groundbreaking bond-buying program conducted by the U.S Federal Reserve has thrown a lifeline for Asia’s equities as the dollar’s reversal alleviated concerns over a capital flight from the region and bring out risk appetite. The MSCI Asia Pacific Index has increased by 4.8% as of 3:58 p.m. in Hong Kong on Tuesday, which is the highest point since October 2008. South Korea stocks also rose by 8.6% after the nation doubled its emergency funds, while Japan’s blue-chip measure Nikkei 225 flourished 7.1%, the most since 2016. However, Asian equities should be aware of some concerns about volatility that might happen in Asian equities. “As the economic impact of the shutdowns around the world begins to work their way through the economics, we can expect more volatility,” Mark Mobius said. “Our research indicates that the average length of a bear market is a little less than two years,” he added. Apart from that, Indonesia’s rate of exchange and the stock market is also affected by The Fed’s new regulation. Head of Research and Education Monex Investindo Futures, Ariston Tjendra said that The Fed’s abrupt new regulation had an impact on the value of the rupiah. Based on the Jakarta Interbank Spot Dollar Rate (Jisdor), the rupiah exchange rate is in the position of Rp16,486 per US dollar, strengthening 0.7 percent from the previous trade of Rp16,608 per US dollar. Moreover, the market is still waiting for approval of a fiscal stimulus from the US government which is worth around US $ 2 trillion, which will provide additional impetus for the rupiah to keep appreciating. On Tuesday (3/24), Ariston projects that in today’s trade, the rupiah exchange rate will be in the range of Rp 16,300 per US dollar to Rp 16,575 per US dollar, considering that the US dollar index tumbled 0.74 percent to the level of 101.733 Sources: Bloomberg

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