Steve Mnuchin Says ‘There’s No Reason’ To Halt The Stock Market (And 10-Year Yields Make History)

In case you were wondering, Steve Mnuchin doesn’t think it’s going to be necessary to halt the stock market due to declines associated with COVID-19.

And yes, that’s where we are – we’re in a situation where Mnuchin is having to reassure folks that we aren’t on the brink of going the China route and simply closing down the market to prevent further declines.

“There would be no reason to halt, the markets are working properly and we have proper circuit breakers in place”, Mnuchin told reporters on Tuesday. “We will get through this”.


Mnuchin, you’re reminded, isn’t the best crisis manager. In 2018, on the Sunday beforeĀ  Christmas Eve’s shortened trading session, Steve famously called the CEOs of Wall Street’s largest banks to ensure they were solvent after the worst December for US equities since the Great Depression.

“The CEOs confirmed that they have ample liquidity for lending to consumer, business markets and all other market operationsā€, Mnuchin proudly declared, in a totally inexplicable December 23, 2018, tweet. It backfired. Stocks plunged the next day.

He’s done a little learning on the job since then, but one still cringes whenever he weighs in during tumultuous times. Today was a good example of why. Just about the last thing you want to do is entertain the notion of halting the stock market, and “entertain” includes even responding to questions about such a move.

Just for fun, here’s a visual trip down memory lane which shows you what China did in 2015, when the country’s equity bubble burst that summer:

Ashares

(Goldman)

Don’t worry, though. Mnuchin doesn’t think a wave of “voluntary” (or involuntary) trading suspensions will be necessary. Commenting further on Tuesday, he said the market’s recent gyrations are due to investors “struggling to assess new risks”.

Speaking of “new risks”, New York has a second case of coronavirus. A Westchester County man has tested positive, Governor Cuomo said Tuesday. The patient works in Manhattan and a school in the Bronx where one of his children attends has been closed. Cuomo also said two families in Buffalo may have COVID-19. In other breaking news, the US Department of Homeland Security shuttered a Seattle field office after an employee may have been exposed.

Little wonder gold is now erasing losses incurred over the past couple of sessions and surging back towards seven-year highs. You’ve got central banks on the cusp of embarking on a coordinated easing push and fear of a biological unknown running rampant – it’s a perfect storm for polished, yellow paperweights.

Meanwhile, 10-year US yields dropped below 1% for the first time ever. This was the precise moment:

(BBG)

“Any skepticism on the part of market participants on the achievability of 0-handle 10s was greatly eroded overnight as the benchmark of all benchmarks saw yields drop to 1.029%”, BMO wrote Monday morning. Yields of course bounced back during the risk rally, but now, here we are, below 1%, just a day later.

“Unlike the breach of 1.25% in 10-year rates, we suspect the 1.00% level will offer more significant resistance; although ultimately it will give way to the massive flight-to-quality currently underway”, Ian Lyngen, Ben Jeffery, and Jon Hill went on to say.

Indeed. 2-year yields plunged by 28bps, while 30-year TIPS yields went negative.

Bank of France Governor Francois Villeroy de Galhau attempted to emphasize that central banks simply cannot do this alone. “Our current monetary policy is already very expansive and acts as an economic stabilizer”, Villeroy said, in an interview with Dutch newspaper De Telegraaf. “But monetary policy should no longer be the only game in town. That is why governments with fiscal space should use it”.

That plea from monetary policymakers has largely fallen on deaf ears.


 

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