logo

Market Analysis

mail
Share
Beyond the Numbers

Futures Pointing To Sharply Lower Open After Fed Slashes Rates
3/16/2020 8:55 AM

The major U.S. index futures are currently pointing to a sharply lower open on Monday, with stocks likely to give back ground following the rally seen going into the close of trading last Friday.

Traders may look to cash in on the previous session’s gains amid escalating concerns about the economic impact of the coronavirus pandemic.

Central banks around the world, including the Federal Reserve, are taking steps to provide economic stimulus to combat the effects of the virus, but the moves may only serve to exacerbate concerns about the impact of the outbreak.

On Sunday, the Fed took the unusual step of slashing interest rates by 100 basis points just days ahead of its scheduled monetary policy meeting this week.

The Fed lowered the target range for the federal funds rate to zero to 0.25 percent from 1 to 1.25 percent, noting the coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the U.S.

The central bank said it expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

In addition to cutting rates, the Fed also announced a new quantitative easing program, revealing plans to increase its holdings of Treasury and mortgage-backed securities by at least $700 billion.

“The Fed's decision to slash interest rates to near-zero won't stop the economy falling into a recession, but the package of liquidity-boosting measures will help prevent credit markets seizing up, reducing the risks a deeper downturn,” said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, “We expect the Fed to do whatever it takes to keep markets functioning smoothly, and to announce further QE & forward guidance to support demand should the crisis worsen significantly.”

The drastic moves by the Fed, which come ahead of the two-day monetary policy meeting set to begin on Tuesday, have raised some concerns that central banks around the world will run out of ammunition to deal with a deepening crisis.

A day after the worst drop by the Dow in over thirty years, stocks showed a substantial move back to the upside during trading on Friday. The major averages fluctuated over the course of the session before experiencing a late-day rally.

The major averages spiked going into the close of trading, ending the session at their best levels of the day. The Dow soared 1,985.00 points or 9.4 percent to 23,185.62, the Nasdaq skyrocketed 673.00 points or 9.3 percent to 7,874.80 and the S&P 500 surged up 230.38 points or 9.3 percent to 2,711.02.

Despite the rebound on the day, the major averages moved sharply lower for the week. The Dow plummeted by 10.4 percent, while the Nasdaq and the S&P 500 plunged by 8.2 percent and 8.8 percent, respectively.

The late-day spike on Wall Street came after President Donald Trump declared the coronavirus outbreak a national emergency.

The declaration by Trump would free up as much as $50 billion in additional funding to combat the outbreak and allow officials to waive certain regulations to accelerate testing and care for coronavirus patients.

Trump said during a press conference in the White House Rose Garden that he expects the U.S. to have 1.4 million coronavirus test kits available within a week and a total of 5 million kits within the next month.

The president said he is also working with private sector companies to develop "drive thru" testing facilities across the country.

However, Trump said he does not want everybody running out and taking the test, saying only people with certain symptoms should be tested.

Adding to the positive sentiment, a coronavirus test developed by Swiss drug giant Roche has been granted emergency use authorization by the FDA.

The FDA said this is the first commercially distributed diagnostic test to receive emergency authorization during the coronavirus outbreak.

Roche said it is committed to delivering as many tests as possible and is going to the limits of its production capacity.

The emergency authorization of the Roche test comes amid rising concerns about the relatively low levels of coronavirus testing in the U.S.

In U.S. economic news, a report released by the University of Michigan showed a relatively modest deterioration in consumer sentiment in the month of March in light of the rampant fear over the coronavirus outbreak and the subsequent sell-off on Wall Street.

The report showed the consumer sentiment index slid to 95.9 in March after rising to 101.0 in February, although the index still came in above economist estimates for a reading of 95.0.

"Importantly, the initial response to the pandemic has not generated the type of economic panic among consumers that was present in the runup to the Great Recession," said Surveys of Consumers chief economist Richard Curtin.

He added, "Nonetheless, the data suggest that additional declines in confidence are still likely to occur as the spread of the virus continues to accelerate."

Banking stocks saw considerable strength amid a continued increase in treasury yields, with the KBW Bank Index soaring by 14.8 percent.

Substantial strength also emerged among energy stocks in late-day trading after Trump pledged to purchase oil at the currently severely reduced prices to fill the U.S. strategic petroleum reserve.

Software stocks also moved sharply higher over the course of the session, driving the Dow Jones U.S. Software Index up by 12.7 percent. The index ended the previous session at a nine-month closing low.

Oracle (ORCL) and Adobe (ADBE) posted standout gains within the software sector after reporting better than expected quarterly earnings.

Steel, semiconductor, brokerage, and transportation stocks also moved sharply higher, while gold stocks bucked the uptrend amid a steep drop by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are plunging $2.73 to $29 a barrel after rising $0.23 to $31.73 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,465.70, down $51 from the previous session’s close of $1,516.70. On Friday, gold plunged $73.60.

On the currency front, the U.S. dollar is trading at 105.27 yen compared to the 107.62 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.1167 compared to last Friday’s $1.1107.

Asia

Asian stocks fell sharply on Monday despite emergency rate cuts by the U.S. Federal Reserve and the Reserve Bank of New Zealand and a fresh round of liquidity injections in China. Weak economic data from China added to investor worries about the impact of the coronavirus.

Chinese stocks fell after the release of dismal industrial data. The benchmark Shanghai Composite Index tumbled 98.17 points, or 3.4 percent, to 2,789.25, while Hong Kong's Hang Seng Index slumped 969.34 points, or 4 percent, to 23,063.57.

China's central bank added more funds into the banking system today but kept its borrowing cost unchanged after the U.S. Federal Reserve unexpectedly reduced interest rates by a steep 100 basis points.

The central bank last week had reduced the reserve requirement ratio by 50-100 basis points for qualifying banks to shore up the economy hit by the outbreak of covid-19.

In economic news, official data showed that Chinese industrial production and retail sales plunged more than expected at the start of the year amid a widespread shutdown of manufacturing operations.

Industrial production plunged 13.5 percent in the January to February period after rising 6.9 percent in December, the National Bureau of Statistics said. Economists had forecast a moderate 3 percent decrease.

Retail sales logged a sharp fall of 20.5 percent, reversing an 8 percent increase in December. Sales were forecast to drop only 4 percent.

Fixed asset investment was down 24.5 percent versus a 5.4 percent rise in January to December 2019. The jobless rate surged to 6.2 percent.

Home sales decreased 34.7 percent annually in the first two months of 2020, while property investment fell 16.3 percent after rising 9.9 percent in January to December 2019.

Japanese shares fluctuated before finishing lower despite the Bank of Japan announcing emergency monetary policy measures and core machinery orders data, an indicator of capital spending in the coming six to nine months, pointing to a rebound.

The total value of core machine orders in Japan climbed a seasonally adjusted 2.9 percent sequentially in January, the Cabinet Office said, coming in at 839.4 billion yen. That exceeded expectations for a decline of 1.0 percent following the upwardly revised 11.9 percent decline in December (originally -12.5 percent).

On a yearly basis, core machine orders eased 0.3 percent - again beating forecasts for a drop of 1.1 percent following the 3.5 percent decline in the previous month.

The Nikkei 225 Index tumbled 429.01 points, or 2.5 percent, to 17,002.04, while the broader Topix closed 2 percent lower at 1,236.34.

Australian markets extended their sell-off into a fourth week and plunged deep into bear market territory despite the Reserve Bank of Australia pumping extra liquidity into the banking system to ensure businesses and households have access to credit amid the coronavirus outbreak.

The benchmark S&P/ASX 200 Index plummeted 537.30 points, or 9.7 percent, to 5,002.00, marking the biggest loss since the Black Monday crash in 1987. The broader All Ordinaries Index ended down 532.50 points, or 9.5 percent, at 5,058.20.

Energy stocks succumbed to heavy selling pressure, with Woodside Petroleum, Santos, Oil Search and Beach Energy falling 14-20 percent. The big four banks gave up 10-12 percent.

Miners heavyweights BHP, Fortescue Metals Group and Rio Tinto dropped 3-6 percent, while gold miner Evolution Mining plunged 11.4 percent, Newcrest lost 13.2 percent and Regis Resources declined 13 percent.

Hearing implants maker Cochlear plummeted 19 percent after withdrawing its earnings outlook.

South Korea's Kospi dropped 56.58 points, or 3.2 percent, to 1,714.86 as the mainstay industries such as automobiles and steel faced a crisis for their first quarter performance.

Europe

European stocks have succumbed to heavy selling pressure on Monday, with shares of travel and leisure companies pacing the decliners after the World Health Organization said Europe has become the epicenter of the coronavirus pandemic.

The number of fatalities in Italy shot up by 368 to 1,809 — more than half of all the fatal cases recorded outside China.

Germany is planning partial border closures, while the French government is considering putting Paris into full lockdown.

Austria banned gatherings of more than five people. The Netherlands ordered its weed-selling coffee shops to shut down.

Spain has imposed a 15-day nationwide lockdown, banning its 46 million citizens from all-non-essential movement.

The U.K. government is facing growing calls to take more drastic measures as thirty-five people died after testing positive for coronavirus in the country.

Markets were also reacting to the U.S. Federal Reserve's surprise move to cut interest rates to nearly zero Sunday and the release of weak economic data from China.

While the French CAC 40 Index has plummeted by 11.1 percent, the German DAX Index is down by 10.0 percent and the U.K.’s FTSE 100 Index is down by 7.2 percent.

Scandinavian Airlines System shares have plunged after the company said it would temporarily lay off up to 10,000 employees or 90 percent of its workforce amid a drop in demand due to the coronavirus outbreak.

Electrolux has also moved sharply lower. The Swedish home appliance manufacturer anticipates a considerable risk of a material financial impact during the first half of 2020 due to the coronavirus outbreak. The company said its previously provided outlook is no longer valid.

TUI Group shares have also plummeted after the Anglo-German multinational travel and tourism company decided to suspend the vast majority of all travel operations until further notice, including package travel, cruises and hotel operations.

Air France-KLM shares have also slumped. The Group, comprising Air France, KLM and Transavia, announced its plan to significantly reduce capacity over the next few days as demand and sales are very weak due to the coronavirus pandemic.

LVMH is also posting a steep loss. The luxury goods giant said it would start making hand sanitizer for French hospitals for free.

Shares of Future plc. have plunged after the platform for specialist media announced the findings by the Competition and Markets Authority on the acquisition of TI Media.

Shares of Countrywide plc have also plummeted. LSL Property Services plc announced that it no longer intends to make an offer for Countrywide.

U.S. Economic Reports

In a sign of the economic impact of the coronavirus outbreak, the New York Fed released a report this morning showing New York manufacturing activity unexpectedly contracted in the month of March.

The New York Fed said its general business conditions index plunged to a negative 21.5 in March from a positive 12.9 in February, with a negative reading indicating a contraction in regional manufacturing activity.

Economists had expected the general business conditions index to show a much more modest decrease and remain positive at 4.0.

The steeper than expected represented the largest point decrease on record and dragged the index down to its lowest level since 2009.

Stocks In Focus

Shares of TechnipFMC (FTI) are moving sharply lower in pre-market trading after the oil and gas company said it is putting plans to separation into two companies on hold due to the adverse market conditions caused by the coronavirus pandemic.

Tech giant Apple (AAPL) may also come under pressure after announcing plans to close all of its retail stores outside of China until March 27th due to the coronavirus.

Shares of Citigroup (C) are also likely to show a substantial move back to the downside after the financial giant joined other major U.S. banks in suspending stock repurchases in light of the coronavirus pandemic.
Follow RTT
Top Movers
Company
Symbol
Name
Up
Down
News