Dow Futures Tumble as G-7 Pledges Coronavirus Support, But No Rate Action

Treasury Secretary Steven Mnuchin will chair an emergency G-7 conference call at 7:00 am Easter time to plan a potential response to cushion the economic impact of the coronavirus.

The Tuesday Market Minute

  • Global stocks gain as investors look to G-7 leaders to provide a coordinated policy response to the economic impact of the coronavirus.
  • Reuters reports G-7 communique makes no mention of fiscal or monetary stimulus, even as central banks around the world pledge to act if needed.
  • President Donald Trump pushed Fed to cut rates in a late-Monday Tweet, while calling on Democratic lawmakers to approve a one-year payroll tax cut.
  • Coronavirus cases rise past 90,000, with nearly 11,000 outside of China, as governments scramble to contain its rapid spread.
  • Democratic voters head to the polls for Super Tuesday, with 1,357 delegates in 16 states up for grabs for the five remaining Presidential candidates.
  • equity futures turned sharply lower Tuesday, following a roaring comeback on Monday that included the biggest single-day point gain for the Dow, as investors parsed through details of the official G-7 policy response to help mitigate the impact of the coronavirus.

U.S. equity futures turned sharply lower Tuesday, following a roaring comeback on Monday that included the biggest single-day point gain for the Dow, as investors parsed through details of the official G-7 policy response to help mitigate the impact of the coronavirus.

Finance ministers from the so-called G-7 group of nations, chaired by U.S. Treasury Secretary Steve Mnuchin, held an extraordinary conference call at 7:00 am Eastern time to discuss their collective response to the coronavirus crisis, which has killed more than 3,000 people and threatens to tip the world economy into recession. 

The leaders pledged to take all possible steps to safeguard the global economy from shocks related to the spread of the virus, but appeared to stop short of offering coordinated interest rate cuts to support financial markets.

"Given the potential impacts of COVID-19 on global growth, we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks," the statement said. "Alongside strengthening efforts to expand health services, G7 finance ministers are ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy during this phase." 

"G7 central banks will continue to fulfill their mandates, thus supporting price stability and economic growth while maintaining the resilience of the financial system," the statement added.

Reuters had reported Tuesday that a draft communique from the G-7 made no mention of fiscal or monetary support plans, even as central banks around the world have issued statements suggesting they're ready to use policy tools -- including rate cuts -- to ensure financial market stability.

Coronavirus cases, meanwhile, have been accelerating at a rate that is eight times faster outside of China -- the epicenter of the outbreak -- than inside, with the number of non-China infections now estimated at nearly 11,000.

That said, the Reserve Bank of Australia cut its key lending rate to a record low 0.5% overnight in an effort to ensure that China's impending slowdown from the virus will have a limited impact on its domestic economy.

The European Central Bank also vowed ready to take "appropriate and targeted measures" to fend off what President Christine Lagarde called a "fast developing situation, which creates risks for the economic outlook and the functioning of financial markets" in a late Monday statement. 

The moves drew praise from U.S. President Donald Trump, who took to Twitter in the late hours of Monday night to harangue the Federal Reserve, and its Chairman Jerome Powell, for being "wrong from day one", as he again call for deeper interest rate cuts. 

Trump has also called for a one-year payroll tax cut to insulate the U.S. from any coronavirus fallout, although he and his team have repeatedly insisted that the economy is strong and the spread of the virus will be minimal.

The lack of clarity on coordinated stimulus from the G-7, at least at this time, clipped earlier gains for U.S. equity futures, which now suggest a 290 point decline for the Dow Jones Industrial Average - which gained nearly 1,300 points last night -- and a 36 point pullback for the S&P 500, which gained 4.6% yesterday, at the start of trading. 

Investors are also likely to be focused on polling in and around today's Super Tuesday Democratic Primaries, where 1,357 delegates in 16 states are up for grabs for the five remaining Presidential candidates, including front-runner Vermont Senator Bernie Sanders and the resurgent former Vice President Joe Biden.

Bond markets, as well, will be closely watched across today's session, especially after yesterday's fresh record lows for 10-year note yields, which touched 1.03%, and the prospect of deficit-lead support from some of Europe's biggest economies to cushion the coronavirus impact. Benchmark 10-year notes were last seen trading at 1.124%.

The the Organisation for Economic Cooperation and Development, in fact, said Monday that global growth could slow by half a percentage point, to 2.4%, a rate that would mark the weakest expansion since 2009. A broader coronavirus spread, the OECD warned, could take that tally to just 1.5%.

Global oil prices, however, looked to extend gains for a second consecutive session as investors bet that G-7 stimulus, as well as the prospect of deeper production cuts from OPEC cartel members later this week in Vienna, will continue to lift prices from their near one-year lows.

Brent crude futures contracts for May delivery, the global benchmark, were last see seen $1.16 higher from their Monday close in New York and trading at $52.47 per barrel, while WTI contracts for April were seen $1.27 lower at $48.02 per barrel.

European stocks booked solid early gains on the back of the ECB statement, as well as yesterday's indication of potential support from the Bank of England, but trimmed those advances after the G-7 statement.

The Stoxx 600 was marked 1.9% higher in Frankfurt while Britain's FTSE 100 jumped 1.5% higher by mid-day trading in London. 

Overnight in Asia, safe-haven flows into the Japanese yen, which rose to 107.93 against the U.S. dollar, pushed the Nikkei 225 to a 1.22% session decline, while solid gains in China and Australia helped the region-wide MSCI ex-Japan benchmark to rise 0.71% heading into the close of trading.