Dow Futures Resume Slide as Coronavirus Fears Pound Markets; Pressure Mounts on Fed

Global stocks sank deeper into the red Thursday, while 10-year bond yields hit a fresh all-time low, as investors continue to retreat from the accelerating risk of the coronavirus.
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The Wednesday Market Minute

  • Global stocks slide further into the red as coronavirus cases outside of China exceed those within for the first time since the outbreak was identified earlier this year.
  • U.S. CDC says California man contracts COVID-19 despite no known links to the disease, while President Donald Trump says risk to Americans remains "very, very low".
  • Microsoft scraps current-quarter revenue guidance for its windows and PC division, citing supply chain disruption, while brewer AB InBev says outbreak will hit near-term profits.
  • Benchmark 10-year U.S. Treasury bond yields hit fresh all-time low of 1.272% in overnight trading, while oil extends declines to a 52-week low after sliding into correction territory.
  • Goldman Sachs warns U.S. companies could generate no earnings growth in 2020 if virus becomes more widespread.
  • U.S. equity futures suggest modest opening bell gains on Wall Street ahead of earnings from Best Buy before the start of trading and Q4 GDP data at 8:30 am Eastern time.

U.S. equity futures sank deeper into the red Thursday, putting Wall Street on pace for its worst week since the global financial crisis, as COVID-19 infections accelerated and health officials confirmed that a California man contracted the disease despite having no travel links or contacts with those afflicted by the virus.

Futures accelerated loses late in the morning session, as wel, after analysts at Goldman Sachs cautioned that U.S. companies could see significant earnings reductions -- and even no earnings growth at all -- if the virus becomes more widespread.

We have updated our earnings model to incorporate the likelihood that the virus becomes widespread. Our revised baseline EPS estimates are $165 in 2020 (previously $174) and $175 in 2021 (previously $183), representing 0% and 6% growth.

"We have updated our earnings model to incorporate the likelihood that the virus becomes widespread," lead analyst David Kostin wrote. "Our revised baseline EPS estimates are $165 in 2020 (previously $174) and $175 in 2021 (previously $183), representing 0% and 6% growth."

President Donald Trump told reporters in Washington late Wednesday that the risk to Americans was "very, very low", and placed Vice President Mike Pence in charge of his administration's response to the growing global health crisis, but investors continue to mark down risk assets and plow cash into safer positions such as gold, U.S. Treasury bonds and the yen.

Markets were further rattled by a statement from tech giant Microsoft  (MSFT) - Get Report, which cautioned investors late yesterday that it would not meet it previously guidance of between $10.75 and $11.15 billion in revenues for its windows and personal computing unit thanks to supply-chain disruption linked to the coronavirus outbreak.

New infections outside of China, in fact, have exceeded those within, and cases have been identified in South America, most of Western Europe and swaths of Asia and the Gulf region. Johns Hopkins University puts the global case total at just over 81,000, with around 2,800 total deaths, including at least 50 outside of China. 

With U.S. Treasury note yields touching a fresh all-time low of 1.272% in overnight trading, and the safe-haven yen rallying to 110.17 against the U.S. dollar, U.S. equity futures look set to extend this week's significant declines, with contracts tied to the Dow Jones Industrial Average indicating a 400 point opening bell slide.

Those linked to the broader S&P 500, which is now down 3.5% for the year, are guiding for a 52 point retreat while Nasdaq futures are suggesting a 190 point slide for the tech-focused benchmark. 

With bond markets around the word rallying sharply -- a U.S. Treasury auction of 5-year notes yesterday drew more than two-and-a-half times more bids than the $41 billion on offer -- traders are also piling more pressure on the Federal Reserve to react with interest rate cuts at it next policy meeting in mid-March.

CME Group futures prices suggest at least a 49% chance of a March reduction, which would take the Fed Funds rate to a range of between 1.25% and 1.5%, compared to just 9% only a week ago. Futures suggest a 78% chance the Fed will move by April, and a 90% chance of a reduction by June.

Analysts are also slashing global economic growth forecasts, with some even suggesting the chance of a recession in China over the first half of the year, all of which continues to pile pressure on crude prices, which tumbled to the lowest levels in more than a year in overnight trading.

Brent crude futures contracts for April delivery, the global benchmark, were last see seen $1.70 lower from their Wednesday close in New York and trading at $51.73 per barrel, while WTI contracts for the same month were seen $2 lower at $46.72 per barrel.

European stocks also extended declines in early Thursday trading, taking the Stoxx 600's one-week slide past 6.5%, with the benchmark falling 3% by early afternoon trading. Britain's FTSE 100, meanwhile, was seen 2.5% lower by mid-day trading in London. 

Overnight in Asia, the yen's rally clipped gains for export-focused stocks on the Nikkei 225, sending the benchmark to a 2.13% decline by the close of trading, while modest recoveries for stocks in China, which is reporting a slowing of new infections, kept losses on the region-wide MSCI ex-Japan benchmark to around 0.4% heading into the close of trading.