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Panic Cuttin’

What’s Going On Here?

With coronavirus putting the US economy on edge, the Federal Reserve (the Fed) announced an emergency cut to the country’s interest rates on Tuesday (tweet this).

What Does This Mean?

The Fed suggested late last week it’d be willing to lower rates to help support the economy – and economists at Goldman Sachs followed up by predicting the bank’s cut would be bigger than usual. But what Goldman didn’t see coming was just how soon the Fed’s announcement would arrive. Perhaps the Fed didn’t want to waste time announcing a rate cut that seemed pretty inevitable. The central bank is, after all, responsible for maximizing employment and stabilizing prices, and both were under threat: an increasing number of people have been missing work, while food and medicine-stockpiling looks like it might trigger rising prices.

Investors are now more likely to expect coordinated rate cuts from the world’s other major economies (think the UK, Japan, and the eurozone). Not least because the G7 – only a few hours before the cut itself – was promising to do what it could to achieve “strong, sustainable” economic growth…

Why Should I Care?

For markets: Temporary relief rally.
The Fed’s announcement initially sent the prices of stocks up around the world: lower US rates make the country’s stocks more appealing, since investors won’t earn as much on relatively safe investments like new government bonds (whose interest rates are partly based on the Fed’s rate). Investors also bought up existing bonds that offered higher returns, which in turn pushed their yields even lower.

The bigger picture: The economy that cried wolf?
Remember, we haven’t actually seen any economic growth figures since the outbreak took hold. That means this pre-emptive central bank action – which won’t leave it much wiggle room when there’s eventually a recession – could backfire. There have already been warning signs aplenty, and it could put added pressure on governments to boost their respective economies with “fiscal stimulus” – that is, infrastructure spending, tax cuts, and so on.

Explained: Why stocks didn’t rally more on the Fed’s emergency measure.

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Shots Fired

Things are going well for Target, which reported strong fourth-quarter results on Tuesday. And turns out the company could be ticking all the right boxes for the future, too, with a growing ecommerce business – including same-day delivery – that appeals to coronavirus-fearing shoppers who are staying put in their own homes.

What’s Going On Here?

Thermo Fisher has caught something, but it's not what you think: the scientific equipment-maker agreed to buy rival Qiagen – along with its coronavirus diagnosis kits – for $10 billion on Tuesday.

What Does This Mean?

The all-cash purchase is Thermo Fisher’s second attempt to land Netherlands-based Qiagen after previous talks fell apart in December. It might be that the deal benefited this time around from last week’s stock market sell-off: Thermo Fisher’s cash, after all, must’ve started looking mighty attractive to Qiagen as the equipment-maker watched its stock price slip.

This more-hopeful-looking deal will give Thermo Fisher control of Qiagen’s diagnostics division – which focuses on treatments for coronavirus, cancer, and so on – as well as food safety tests and CSI-style forensics. Overall, Thermo Fisher is expecting the move to save it $200 million a year in so-called synergies: that is, money it cuts from overlapping costs. That might give Qiagen’s 4,700 employees something to worry about – as if the threat of global pandemic weren’t nerve-wracking enough.

Why Should I Care?

The bigger picture: Fair’s fair.
Some Qiagen investors might be disappointed with the price Thermo Fisher is paying: its bid of about $44 per share values the Dutch company at almost seven times last year’s sales, sure, but it’s still well short of the $50 some analysts were expecting. Then again, Thermo Fisher’s investors might not think it’s bagged itself a bargain, either: the valuation it’s paying for Qiagen is by one metric about 50% more than the recent average for US takeovers.

For markets: Buy on the sound of coughing.
While the prospect of a coronavirus-damaged economy saw most companies’ stocks fall last week, some are making hay while the sun clouds over. There are biotech firms like Moderna that are working on a vaccine, for example, as well as tools that allow workers to keep calm and carry on, like video conferencing service Zoom.

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Panic Cuttin’

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