Dow Futures Gain on German Spending Report, But Coronavirus Fears Continue to Grip Markets

World stock markets have lost more than $3 trillion in equity value this week as investors dump risky assets amid growing concerns of a global coronavirus pandemic.
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The Wednesday Market Minute

  • Global stocks extend declines, pushing equity market losses well past $3 trillion, as health officials warn the coronavirus could spread further and likely affect the United States.
  • CDC says U.S. spread a matter of "when", not "if" as the number of cases holds at 57, but rising infections in Italy and Western Europe suggest the virus could yet evolve into a global pandemic.
  • Bloomberg reports Germany is prepared to temporarily suspend its public borrowing limit, a move that could increase fiscal spending in Europe's biggest economy. 
  • Benchmark 10-year Treasury note yields hold at 1.37%, following yesterday's record-low 1.31% print, but futures prices suggest more pressure on the Fed to react with rate cuts if the virus spreads further through the United States. 
  • U.S. equity futures suggest modest opening bell gains on Wall Street ahead of earnings from Lowe's, L Brands and Marriott before the start of trading.

U.S. equity futures bumped higher Wednesday, following the worst two-day point sell off in Wall Street history, although weak markets in Europe and Asia, alongside warnings from health officials that the coronavirus will likely spread to the Untied States, continues to weigh on investor sentiment.

Stocks were given a late morning boost, however, from a report from Bloomberg that suggested Germany was prepared to temporarily suspend its public borrowing restrictions in order to increase fiscal support spending in Europe's largest economy. Germany carried a budget surplus equal to 1.4% of its GDP, or around $53.5 billion, over the whole of 2019.

U.S. equity futures suggested improving opening bell gains on Wall Street as a result, with contracts tied to the Dow Jones Industrial Average indicating 155 point advance, leaving the three-day total decline at around 1,900 points, and those tied to the S&P 500 guiding to a 19 point gain that will leave the benchmark's year-to-date losses at 3.3%.

The U.S.-based Center for Disease Control said late Tuesday that the virus' spread throughout the United States was a matter of "when", not "if", and cautioned citizens to prepare for potential disruptions to their daily routines. 

The advice followed similar warnings from the World Health Organisation, which urged countries to step up their defence systems as the number of global infections rises past 81,000 and the death toll reaches 2,762 - including more than 50 outside of China, where the virus was first identified in late 2019. 

Officials in France have said the number of cases has now risen to 17, with at least one death recorded, while the spreading virus has also been detected in Switzerland, Austria and Germany. 

With global markets nursing losses that have wiped away more than $3 trillion in equity market value, and benchmark 10-year U.S. Treasury bonds trading at an all-time low of 1.32%, investors were in little mood to reach for risk in overnight trading.

European stocks were also on the back foot, with the Stoxx 600 sliding as much as 2.8% at one point before rising into positive territory following the Bloomberg report on German borrowing. 

In Italy, where coronavirus cases have risen past 320 and the number of deaths has reached at least ten, stocks fell another 1.2% to push the FTSE MIB benchmark into correction territory before adding 0.6% by late morning.

Benchmark 10-year Treasury note yields held at 1.37%, after hitting an all-time low of 1.3% yesterday, while the U.S. dollar index slipped to 98.968 against a basket of its global peers. Gold rose another 1.1% to $1,652.77 per ounce.  

CME Group futures prices are noting at least a 65% chance of an April rate cut, which would take the Fed Funds rate to a range of between 1.25% and 1.5%, with traders betting on an 88% chance the Fed will move by June.

Brent crude futures contracts for April delivery, the global benchmark for pricing, were last see seen 96 cents lower from their Tuesday close in New York and trading at $53.92 per barrel, while WTI contracts for the same month were seen 64 cents lower at $49.19 per barrel.

Overnight in Asia, Japan's Nikkei 225 extended declines amid the ongoing global market sell-off to close 0.8% lower on the session, while the region-wide MSCI ex-Japan benchmark fell 2.3%, lead by sharp declines for Australia's China-sensitive ASX index.