Rate cut euphoria offset by recession fears

Small-cap stocks opened lower, but clawed back to a mild gain about 20 minutes after the open as fear about a recession and tight credit conditions battled overnight euphoria tied to global central bank rate cuts. This marked the first globally coordinated rate cut by central bankers since the 2001 recession in the aftermath of the 9/11 terrorist attacks. At 10:01 a.m. ET, the Russell 2000 (NYSE:IWM) was up 3.53, or 0.63%, at 562.48.

Volatility in the two-hour time frame ahead of the actual market opening has been unprecedented this week. Today saw S&P e-mini futures trade in an astonishing 92-handle range overnight as the market rallied on the rate cut news, then slumped as traders digested the news and decided it wouldn’t necessarily avert recession or unclog credit lines. Unless you were awake early this morning well before the opening, then you never even got to rejoice in a brilliant overnight rally in stock market derivatives.

The market was in retreat mode overnight in the wake of Tuesday’s slide to fresh four-year lows, but when the announcement came out at 7:00 a.m. ET that central bankers around the world were slashing interest rates in concert, it sparked a big relief bounce in equities. European shares went from a stunning 6% loss to a brief positive print, bolstered by not just the coordinated global rate cuts, but also by news that the Bank of England was injecting 50 billion pounds to help the banking business. The news on rate cuts came a little late to rescue Asian stocks, with Japan down 9.3%, Hong Kong off 8.7%, China down 3.7%, Taiwan down 5.7%, Australia off 5%, Singapore down 6.6%, South Korea down 5.2% and India down 3.1%. Trade on Russian and Indonesian shares was halted when they reached 10% declines.

For the record, the Federal Reserve slashed its target rate on Fed funds to 1.5% from 2%, the lowest level since August 2004. Meanwhile, the European Central Bank, Bank of England, Swiss central bank, Swedish central bank and even the Chinese central bank also sliced rates this morning.

Perhaps one early sign that the rate cuts weren’t going to gain immediate traction in the market was that gold prices pushed higher despite the news. Gold is seen as a safe-haven and if that market continues to grind higher, its unlikely money . . .

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