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Beyond the Numbers

New Fed Measures To Support Economy May Generate Early Buying Interest
3/23/2020 8:59 AM

The major U.S. index futures are currently pointing to a sharply higher open on Monday, with the futures showing a significant turnaround after coming under pressure overnight.

The rebound by the futures came after the Federal Reserve announced extensive new measures to support the economy during the coronavirus pandemic.

Citing the tremendous hardship being caused by the outbreak, the Fed said it is committed to using its full range of tools to support households, businesses, and the U.S. economy overall in this challenging time.

The measures announced today include an unlimited expansion of the Fed’s asset purchases, with the central bank saying it will purchase Treasuries and mortgage-backed securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”

The Fed had previously announced it would purchase at least $500 billion of Treasury securities and at least $200 billion of mortgage-backed securities.

The announcement from the Fed offset earlier selling pressure partly generated in reaction to news that a massive fiscal stimulus bill failed a key procedural vote in the Senate on Sunday.

Voting largely along party lines, the Senators voted 47 to 47 on the procedural motion, falling short of the 60 votes needed to advance the bill.

Democratic Senators voted against advancing the bill amid complaints that the legislation does too much to bail out companies and not enough to provide assistance to workers.

Meanwhile, Senate Majority Leader Mitch McConnell, R-Ken., accused Democrats of “fiddling with the emotions of the American people, fiddling with the markets” and “fiddling with our health care” and urged lawmakers to reach an agreement no later than today.

The latest developments come as data from Johns Hopkins University shows the number of confirmed coronavirus cases has climbed above 350,000 worldwide, with confirmed cases in the U.S. jumping above 35,000.

Stocks moved sharply lower over the course of the trading day last Friday, more than offsetting the gains posted on Thursday. With the pullback on the day, the Dow and the S&P 500 fell to three-year closing lows, while the Nasdaq hit its lowest closing level in over a year.

The major averages finished the session just off their worst levels of the day. The Dow plunged 913.21 points or 4.6 percent to 19,173.98, the Nasdaq tumbled 271.06 points or 3.8 percent to 6,879.52 and the S&P 500 plummeted 104.47 points or 4.3 percent to 2,304.92.

For the week, the Dow crashed by 17.3 percent, the Nasdaq nosedived by 12.6 percent and the S&P 500 tanked by 15 percent.

Stocks moved to the upside early in the session but came under pressure over the course of the day amid lingering concerns about the economic impact of the coronavirus pandemic.

Commodity, Currency Markets

Crude oil futures are inching up $0.04 to $22.67 a barrel after plunging $2.79 to $22.43 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,516.90, up $32.30 from the previous session’s close of $1,484.60. On Friday, gold rose $5.30.

On the currency front, the U.S. dollar is trading at 110.31 yen compared to the 110.93 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.0763 compared to last Friday’s $1.0688.

Asia

Asian stocks ended mostly lower on Monday as a spike in coronavirus cases in the United States and Europe fueled worries about a deep global recession.

More countries and regions are resorting to shutdowns and border closures to prevent the spread of COVID-19, raising concerns about the likely economic impact of the pandemic.

China's Shanghai Composite Index plunged 85.45 points, or 3.1 percent, to 2,660.17 despite the health commission of Hubei province, of which Wuhan is the capital, reporting no new infections for a fifth day in a row. Hong Kong's Hang Seng Index plummeted 1,108.94 points, or 4.9 percent, to 21,696.13.

Meanwhile, Japanese shares rebounded after Prime Minister Shinzo Abe hinted that the Tokyo Olympics could be postponed but ruled out the possibility of canceling the global sporting event.

Growing hopes for the Bank of Japan's stepped-up purchases of exchange-traded funds also offered some support.

The Nikkei 225 Index jumped 334.95 points, or 2 percent, to 16,887.78, bouncing off a 3-1/2-year low touched last week. The broader Topix closed 0.7 percent higher at 1,292.01.

Ad firm Dentsu Group soared 8.6 percent after the International Olympic Committee's executive board said it is considering postponing but not canceling this summer's Olympic Games. Dentsu is the main marketing agency for the event.

Market heavyweight SoftBank Group jumped 18.6 percent to hit its daily limit after the tech conglomerate said it would sell up to 4.5 trillion yen ($41 billion) in assets to fund a share buyback of up to 2 trillion yen and reduce debt.

Australian markets extended their rout as businesses across the country prepared to shut or scale down their operations to contain the spread of the coronavirus.

The benchmark S&P/ASX 200 Index nosedived 270.60 points, or 5.6 percent, to 4,546, the lowest level since December 7, 2012. The broader All Ordinaries Index dropped 290.20 points, or 6 percent, to 4,564.10.

The big four banks fell 9-12 percent, while investment bank Macquarie Group plunged 15.3 percent. In the energy sector, Origin Energy, Woodside Petroleum, Santos and Beach Energy lost 4-12 percent, while Oil Search plummeted 19.7 percent.

Retailer JB Hi-Fi gave up 10.8 percent after withdrawing its guidance. Mining heavyweight Rio Tinto declined 4 percent, while BHP finished marginally higher. Healthcare giant CSL rallied 4.2 percent after a spate of late buying.

Seoul stocks fell sharply amid growing jitters over the economic fallout from the novel coronavirus. The benchmark Kospi slumped 83.69 points, or 5.3 percent, to close at 1,482.46 after rebounding nearly 8 percent in the previous session.

Trading was briefly halted just six minutes after the opening bell as the market fell by more than five percent due to an extended sell-off by foreign investors.

Health authorities detected 64 new coronavirus cases on Sunday, bringing the total infections to 8,961, but marking the lowest daily increase in almost a month.

Economic worries persisted despite the government last week approving an extra budget worth 11.7 trillion won (US$9.1 billion) and the country's central bank cutting its policy rate by half a percentage point to a record low of 0.75 percent to fight the viral outbreak.

Europe

European stocks have tumbled to nearly seven-year lows on Monday as the coronavirus' spread continued unabated and the U.S. Senate failed to advance a third economic stimulus package to help Americans and the American economy weather the pandemic.

With several countries on full lockdown and the number of confirmed cases in the U.S. surpassing 32,000 on Sunday, it is unclear whether the virus will cause a short economic hit or a prolonged, full-blown recession. Italy banned even domestic travel as the number of fatalities there topped 5,400.

While the U.K.’s FTSE 100 Index is down by 1.8 percent, the French CAC 40 Index is down by 0.6 percent and the German DAX Index is down by 0.2 percent.

Electrolux is posting a steep loss. The Swedish multinational home appliance manufacturer has withdrawn its dividend proposal to the Annual General Meeting 2020, citing uncertainty relating to the medium-term effects from the spread of the coronavirus.

Shares of Leoni AG has also plunged. The provider of energy and data management solutions for the automotive industry said it sees substantial burdens on sales, earnings and liquidity from the COVID-19 pandemic.

Shares of ITV Plc have also moved sharply lower after the media company withdrew its market guidance for 2020, citing uncertainty related to the COVID-19 situation.

Similarly, shares of IWG have nosedived. The operator of co-work and workspace companies said it is too early to provide earnings guidance for the remainder of the current financial year due to the evolving nature of the coronavirus pandemic.

Royal Dutch Shell has also come under pressure as it announced a series of initiatives to cut underlying operating costs and reduce cash capital expenditure.

Aggreko is also posting a significant loss. The flexible power supplier said it doesn't believe it is possible to retain its 2020 guidance.

Associated British Foods has also plunged after it projected a loss of around 650 million pounds of net sales per month due to the closure of all Primark stores due to Covid-19 pandemic.

Pearson shares have also sharply lower. The publishing and education company, in its update on current trading and the impact of COVID-19, announced the closure of a majority of Pearson VUE test centres from now until the middle of April.

Plane maker Airbus has also slumped. The company announced its decision to withdraw fiscal 2020 guidance and 2019 dividend proposal due to the worsening COVID-19 pandemic.

The company also announced new 15 billion euros credit facility as part of its measures to bolster its liquidity and balance sheet in response to the coronavirus.

U.S. Economic Reports

No major U.S. economic data is scheduled to be released today, although reports on new home sales, durable goods orders, and personal income and spending are due to be released in the coming days.

Stocks In Focus

Shares of Best Buy (BBY) are moving notably lower in pre-market trading after the electronics retailer withdrew its guidance for both the first quarter and full year and suspended all share repurchases. Best Buy also said it is shifting to enhanced curbside service only for all of its stores on an interim basis.

Housewares retailer Bed Bath & Beyond (BBBY) may also see initial weakness after announcing it will temporarily close all its retail banner stores across the U.S. and Canada, other than its buybuy BABY and Harmon Face Values stores.

On the other hand, shares of Danaher (DHR) are seeing significant pre-market strength after the conglomerate’s Cepheid unit received Emergency Use Authorization from the U.S. Food and Drug Administration for its rapid coronavirus diagnostic test.
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