Dow Futures Hit 'Limit Up' Levels as Investors Bet Fed Support

Central banks and governments around the world are pledging trillions in coronavirus support as nearly a fifth of the world's economy goes offline.
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The Tuesday Market Minute

  • Global stocks gain as investors react to trillions in government and central bank stimulus efforts to contain the cornoavirus impact on the world's biggest economies.
  • PMI data, however, suggests sharp near-term contractions as nearly a fifth of the world economy goes offline amid travel restrictions and business closures aimed at taming the spread of COVID-19, which has infected more than 380,000 people and killed at least 16,700.
  • Senate lawmakers say they're near to an agreement on a $2.5 trillion coronavirus relief bill that would offer direct financial assistance to American homes and business within a matter of days.
  • European stocks surge despite dire PMI numbers that point to a severe first half recession, while Britain wakes up to an unprecedented lockdown ordered last night by Prime Minister Boris Johnson.
  • Wall Street futures suggest a firm Tuesday rebound, after stocks fell to December 2016 lows yesterday, ahead of PMI data at 9:45 am Eastern time and third quarter earnings from Nike after the close of trading. 

U.S. equity futures hit 'limit up' levels Tuesday, while global stocks booked solid gains, as investors measured the impact of trillions in central bank and government stimulus against early data that suggests deep near-term contractions for some of the world's biggest economies.

While Monday's trading session on Wall Street largely dismissed the Federal Reserve's historic move to unlimited bond purchases, backstop billions in corporate loans and roll out credit to small and medium-sized businesses, international markets rallied on the prospect of trillions in dollar funding that will ease market access in the weeks to come.

The Fed's 'all-in' effort to cushion what is likely to be a severe near-term recession was matched by a rare debt-lead stimulus plan in Germany, where lawmakers approved an $810 billion package of loans and support programs that followed the European Central Bank's $820 billion expansion of its own quantitative easing program last week.

On Capitol Hill, lawmakers are also close to agreeing terms to a $2.5 trillion cornoravirus relief bill that will provide direct financial support to a swathe of American households and businesses as restrictions and closures keep millions working from home.

In fact, by some estimates, nearly a fifth of the global economy has gone offline since the virus began to escalate, thanks to locksdowns and travel restrictions, with devastating impacts on the world's biggest economies.

Japan's March PMI data showed the biggest-ever contraction in its services sector, while Germany's composite PMI slump, to 37.2, suggests a first quarter GDP contraction of around 2%, with more pain to come over the three months ending in June. 

Still, U.S. stocks look set for a solid open Tuesday, after falling to the lowest levels since late 2016 on Monday in moves that nearly wiped out all of the gains recorded since President Donald Trump was elected on November 9 of that year.

Futures contracts tied to the Dow Jones Industrial Average rose 5% in early trading to hit "limit up" levels and now indicate an 845 point opening bell gain. Contracts tied to the S&P 50, meanwhile, suggest a 99 point advance for the broader benchmark.  

Pre-market trading in the main SPDR S&P 500 ETF  (SPY) - Get Report, however, continues, with the biggest passive investment vehicle rising 5.25% to indicate an opening bell price of $234.66 each. The SPDR Dow Jones Industrial Average ETF  (DIA) - Get Report, meanwhile, was last seen 5.03% higher at $195.50 each.

The CBOE's key volatility gauge, known as the VIX, was marked 16% lower at 55.54 points, meaning options traders are pricing in a 55% chance that the S&P 500 will rise or fall by 55% over the next year -- around 30 points shy of the all-time high recorded last week.

European stocks were also notably higher Tuesday, thanks in part to Germany's record stimulus plans and the Fed's unlimited dollar funding push, with the Stoxx 600 rising 4.2% in the opening hours of trading, lead by a 5.1% gain for the DAX performance index in Frankfurt.

Britain's FTSE 100, meanwhile, was seen 3.7% higher as the country woke up to the most severe restrictions on record following last night's address from Prime Minister Boris Johnson, who ordered a nation-wide lockdown of Europe's second-biggest economy, which is expected to last for at least three weeks, in order to slow the spread of the coronavirus outbreak.

The Fed's dollar funding moves, as well as bets on the passage of the Senate's $2 trillion stimulus bill later today took its toll on the U.S. dollar, which was marked 0.9% lower on the session at 101.53 against a basket of its global peers, while benchmark 10-year Treasury bond yields held at 0.81%.

Oil prices also edge higher, boosted by global stimulus plans and a weaker U.S. dollar, but gains were limited by the prospect of record-high production from Saudi Arabia, which has pledged to pump as much as 12.3 million barrels per day next month.

Brent crude futures contracts for May delivery, the global benchmark, were last seen 94 cents higher from their Monday close in New York and trading at $27.97 per barrel, while WTI contracts for the same month were marked $1.15 higher at $24.51 per barrel.

Overnight in Asia, reports of fresh stimulus from Tokyo, as well as the Fed's historic balance sheet expansion, helped the Nikkei 225 to a 7.13% session gain that pulled the benchmark over the 18,000 point mark, while the region-wide MSCI ex-Japan index was seen 5.2% higher heading into the close of trading.