The Reserve Bank of New Zealand and the Federal Reserve both cut interest rates to near zero in unusual inter-meeting moves this morning. The Fed also announced a new $700 billion in securities purchases to provide additional liquidity, and arrangements with five other central banks to ensure the global supply of US dollars. The US dollar tumbled in response.

Despite the cuts, early share market reactions are negative. In US Sunday night trading indices are down 4-5%, and NZ shares are around 2.5% lower. Nikkei and Australia 200 futures closed higher on Saturday morning after a global rally that lifted major markets by 10% or more in a single session. However the early response to the central bank moves suggests those gains may evaporate as cash markets come back on line this morning.

Bonds are the beneficiaries of the official responses to the threats posed by the Covid-19 causing virus. After selling off hard on Friday’s stocks rally, Australian ten-year bonds are 9 points lower in yield this morning, and US bond futures are firmly green. Gold is also trading higher this morning.

As governments around the globe ramp up their efforts to contain and minimise the health and economic damage, traders are alert for more central bank responses. While investors may welcome the huge turnaround in stocks on Friday the extreme moves and ongoing higher volatility suggest difficult trading will continue.