Dow Futures Slip Lower As Treasury Pulls COVID Relief Funds From Fed

Outgoing Treasury Secretary Steve Mnuchin is seeking the return of nearly half a billion dollars in unused CARES Act funds coronavirus relief funds from the Federal Reserve.

The Friday Market Minute

  • Global stocks mixed as risk appetite fades amid a spat between the U.S. Treasury and the Federal Reserve over coronavirus stimulus funds.
  • Outgoing Treasury Secretary Mnuchin seeks return of $455 billion in CARES Act funds by the end of the year, an ominous signal for stimulus talks in the lame duck Congress.
  • U.S. coronavirus infections top 185,000 Thursday, a fresh record high, as the CDC advises against Thanksgiving travel. 
  • President Donald Trump continues to challenge his election defeat even as lawsuit and recount failures mount.
  • Pfizer may file for Emergency Use Authorization from the FDA for its coronavirus vaccine later today.
  • Wall Street futures suggest a mixed open ahead of earnings from Foot Locker and 9:30 am Eastern Time remarks from Fed Presidents Rob Kaplan and Esther George.

U.S. equity futures edged lower Friday, while bond prices rallied and the dollar posted modest gains, as markets reacted to a move by the Treasury to recall nearly half a billion dollars in coronavirus aid from the Federal Reserve.

Outgoing Treasury Secretary Steve Mnuchin said around $455 billion in funds from the CARES Act, assigned by Congress to the Treasury and ultimately shifted to the Fed to support lending to businesses, non-profit and local government organizations, should be returned by the end of the year.

The Fed, which has consistently urged lawmakers to step-up their fiscal support for the slowing economy while pledging to keep interest rates at near zero for at least three more years, expressed public regret for Mnuchin's late-hour request.

The move not only deprives the Fed of one of its successful lending tools, but also provides an ominous signal as to the fate of newly-revived stimulus talks between lawmakers in Washington, just as coronavirus infection rates threaten new lockdown orders in states around the country. 

Benchmark 10-year Treasury note yields, which move in the opposite direction of prices, fell to an early November low of 0.841% in overnight trading, lifting the U.S. dollar index 0.1% higher against a basket of its global peers to 92.630 in a defensive European session.

U.S. coronavirus cases, meanwhile, surged to a new record high of 185,000, with the Centers for Disease Control warning that as many as 300,000 people could die by mid-December as the pandemic's accelerating pace and urging people not to travel or mingle over the Thanksgiving holiday.

On Wall Street, however, the downside to the headline news was limited by expectations the Pfizer  (PFE) - Get Report will file for Emergency Use Authorization (EUA) from the U.S. Food & Drug Administration later today for its developed coronavirus vaccine after late-stage date indicated it was 95% effective in preventing the virus that causes COVID-19.

Futures contracts tied to the Dow Jones Industrial Average indicate only a modest 55 point opening bell decline, while those linked to the S&P 500 are priced for a 3 point pullback. Nasdaq Composite futures, meanwhile, suggest a small 20 point gain for the tech-focused benchmark. 

European stocks, however, were on firmer ground in the opening hours of trading in Frankfurt and London, with an easing euro and positive data on new infections in France and Germany providing some support for regional stocks.

The Stoxx 600 benchmark added 0.7%, while the FTSE 100 in London was marked 0.8% higher as it rounded out the week.

Overnight in Asia, Mnuchin's move to cut of Treasury funds, as well as the ongoing moves by President Donald Trump to overturn the November election results, triggered a flight-to-safety trades that lifted the Japanese yen to 103.82 against the U.S. dollar, tipping the Nikkei 225 into a 0.42% decline on the session.

Oil prices, however, edged higher to close out another solid week of gains amid bets that OPEC members will delay a planned paring of their existing production cuts -- which were meant to go from 7.7 million barrels per day to 5.5 million at the end of the year -- when they meet next month in Vienna.

WTI crude futures contracts for December delivery, the U.S. benchmark, traded 14 cents higher from their Thursday close in New York and were changing hands at $42.04 per barrel in early European dealing, while Brent contracts for January delivery, the global benchmark, fell 26 cents to $44.46 per barrel.