Stock Futures Rebound After Fed's Latest Stimulus Move
24 March 2020 - 12:15AM
Dow Jones News
By Joanne Chiu and Anna Isaac
U.S. futures climbed, reversing steep losses Monday after the
Federal Reserve announced additional support for the financial
system.
The rapid spread of coronavirus cases and Washington's delay
over an economic rescue package had rattled markets earlier in the
day, sending U.S. stock futures, global stocks and oil prices
lower.
S&P 500 futures turned positive after briefly hitting the
maximum 5% loss allowed in a single session. Last week, the Dow
Jones Industrial Average and S&P 500 indexes registered their
worst weeks since October 2008. The turnaround came after the Fed
said it would buy unlimited amounts of Treasurys and
mortgage-backed securities.
"Open-ended asset purchases are undoubtedly a positive. The
Fed's move will prove supportive for riskier assets today," said
Edward Park, deputy chief investment officer at Brooks Macdonald.
"It's clearly improved sentiment, but there still won't be a true
floor for markets until the fiscal response is delivered by
governments."
U.S. lawmakers and administration officials had hoped to reach
an agreement on a $1.3 trillion deal to blunt the economic impact
of the coronavirus pandemic. But Senate Democrats blocked the
rescue package after a dispute with Republicans over corporate
bailout provisions and aid to dislocated workers. Lawmakers and
administration officials still hoped to reach an agreement to allow
both chambers of Congress to approve it as the week opened
Monday.
Investors said the delay in reaching an agreement in Washington
had helped drive up volatility expectations in markets. The Cboe
Volatility Index or VIX rose 9.7% to 72.43, before moving below 70
after the Fed announcement. It reached an all-time high last Monday
of 82.69.
European markets were lower. The Stoxx Europe 600
pan-continental index fell 1.5%, and the German Dax was flat.
German Chancellor Angela Merkel is self-isolating after coming into
contact with an infected doctor. The government is set to adopt
fiscal measures worth EUR500 billion ($535 billion) to help cushion
Europe's economic powerhouse from the impact of the pandemic. The
U.K.'s benchmark FTSE 100 fell 3.7% to nearly its lowest point in a
decade.
While stocks fluctuated, investors sought shelter in traditional
safe-haven assets, such as bonds, gold and currencies like the
Swiss franc and Japanese yen, a return to a more traditional
trading pattern that gave some investors solace. For several days
last week, those assets fell along with stocks, a sign that markets
were coming under severe strain.
"We're not at a turning point yet, we're still seeing a crisis
in markets. But, there are signs that some of the stress may be
easing," said Lee Hardman, currency analyst at MUFG Bank. He
pointed to efforts central banks, including the Federal Reserve,
made last week to calm markets.
The yield on the 10-year U.S. Treasury note fell 0.204
percentage point to 0.733%, according to Tradeweb, as investors
sought the safety of government bonds. Yields move in the opposite
direction to prices.
"Investors are not responding to the fiscal bazookas. The price
action of high yield corporate bonds says it all; lower lows. The
expected ramping up of oil supply doesn't help and rate cuts are
useless," said Gregory Perdon, co-chief investment officer at
Arbuthnot Latham. "That said, Fed swap lines, Bank of Japan ETF
buying and general liquidity on offer to the banking sector is a
welcome development."
In Asia-Pacific, most stock benchmarks dropped. Australia's
benchmark S&P/ASX 200 fell nearly 6% to levels last reached in
2012, despite the country's federal government rolling out a
stimulus package of 66 billion Australian dollars ($38 billion).
Indian shares plunged, triggering trading halts, with the S&P
BSE Sensex index falling 13%.
Japan's Nikkei 225 bucked the downtrend, ending 2% higher. It
had been closed Friday, when some other Asian markets had rallied.
Shares in SoftBank Group, a major index constituent, soared on
plans to sell up to Yen4.5 trillion ($41 billion) of assets to buy
back shares and redeem debt.
Write to Joanne Chiu at joanne.chiu@wsj.com and Anna Isaac at
anna.isaac@wsj.com
(END) Dow Jones Newswires
March 23, 2020 09:00 ET (13:00 GMT)
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