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Market update 17 March: Stimulus fails to ease investors' nerves

  • Markets woke on Monday morning to another surprise interest rate cut by the Federal Reserve. They cut the interest rate to near zero and at the same time said they will buy USD 700 billion in Treasury and mortgage-backed securities.
  • On Monday the Oslo Stock Exchange fell more than 10% and came close to the worst trading day in history.
  • In addition, an increasing number of world leaders have made the decision to impose partial shutdowns or total lockdowns in their countries (the Norwegian ban for people staying in their cabins was noticed by the international press).
  • The Fed did not manage to calm markets by its emergency response and Monday saw a another significant market drawdown
  • In the afternoon the leaders of the Group of Seven had a conference call that led to a statement saying they are committed to "doing whatever is necessary" to ensure a strong global response through closer cooperation and enhanced coordination of efforts. Unless the words translate into concrete actions it is hard to see how this can restore confidence in markets.
  • Overnight markets in Asia rose and S&P Futures points to gains after a report that the Trump administration had urged Senate Republicans to approve a bill to help the US deal with the economic problems due to the pandemic.
  • It looks like the markets are seeking assures that Governments will put money on the table and provide what is necessary to secure against at deep recession. In developed markets there is not much more monetary policy can do and therefore Governments must step in.
  • The Norwegian bond market is currently challenging. Liquidity is weak and spreads have spiked with the market impacted by both the coronavirus and oil price shock. Both of SKAGEN's fixed income funds are affected by this situation which the market has not experienced since the financial crisis.
  • It is positive for the Norwegian bond market that the Government has reinstated the Government Bond Fund which has NOK 50 billion to finance Norwegian banks and corporates. In a market with many more sellers than buyers, it is very positive to get a large buyer in place.

SKAGEN Funds summary

  • All funds continue to monitor the market closely and remain rational.
  • All funds have enough cash and/or a liquid portfolio.
  • The portfolio managers continue to evaluate buy and sell opportunities in the best interests of clients. 

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