Stock Futures Rebound After Fed’s Latest Stimulus Move
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.