- The U.S. stock market is set for a higher open on Tuesday as Dow futures rallied overnight.
- Donald Trump’s promise of an emergency fiscal response boosted risk appetite as he floated the possibility of a payroll tax cut and medical leave for hourly employees.
- Unfortunately for stocks, Morgan Stanley is not confident that cheaper oil will be a significant boost to the U.S. consumer.
Dow futures surged 600 points overnight as Donald Trump hosted an emergency press conference to address the economy after a historically bad day in the U.S. stock market.
Speaking in the shadow of the largest-ever point drop in the Dow Jones, Trump offered drastic fiscal support in an effort to pull risk appetite off the floor.
Stock Futures Rally, Gold Falls As Trump Offers “Dramatic Actions” For Markets
Futures on all three major U.S. stock indices enjoyed a strong rally, as the Nasdaq rose almost 2.7%, while the S&P 500 and Dow Jones rose around 2.5%.
Some optimism returned to the oil markets as crude rallied 4.5% to return above $32 a barrel. Haven demand dropped, sending the price of gold down 0.4% to $1,667 along with the Japanese Yen, which lost 0.6% as USD/JPY rose back towards the 103 level.
Confirming the risk-on mood, Treasury yields rallied, with the 10-year yield climbing to 0.6% and the 30-year yield soaring back above 1%.
If the stock market was battered and bruised last week, it was broken on Monday, as a 2000-point crash looked like pure capitulation. Trading was halted after a 7% drop in the morning, and the Dow Jones eventually closed down near its lows.
Stock Market Sentiment Brightens On Hopes Of Substantial Fiscal Support
It was Donald Trump to the rescue late Monday as the president rushed back to Washington D.C. to provide some much-needed support to a nervous Wall Street.
Although Trump promised nothing concrete, the ideas being floated include providing some federally administered medical leave for at-risk employees alongside a possible payroll-tax cut to help counter the coronavirus.
The force with which he delivered these lines is what did the trick for stock market futures, as “very substantial relief” and “very dramatic actions” were both lines stated by the President.
Unfortunately for Dow bulls, there are big question marks about the government’s ability to support an exogenous shock like the coronavirus.
Wall Street shrugged off an emergency rate cut from the Federal Reserve like it was nothing last week, then demanded more. This prompted analysts to suggest that it was fiscal support that was truly needed.
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Still, as Italy goes into nationwide lockdown, even boosted spending plans look limited in its ability to counter dwindling demand on this scale.
Highlighting the effects of COVID-19 over the last few months, New Zealand’s ANZ business confidence reading came in at an astonishingly bad -53 (-16 prior).
Morgan Stanley: Cheap Oil Might Not Help Boost Consumer Demand
It was not only the coronavirus that was weighing on the Dow Jones, as crude oil had its worst day since the Gulf War in 1991, down more than 30% at its lows.
Predictably, President Trump has been quick to play up the possible beneficial effects of this.
Unfortunately, analysts at Morgan Stanley are not so sure, as they put out a note to clients stating,
On the surface, the addition of an added oil supply shock should be viewed as a cushion … However, given the pullback in consumer demand in travel and entertainment, the actual boost to household purchasing power from falling oil prices could be less than usual.
It shows how oversold stocks are in the short term that all of these questionable boosts to the economy are prompting such a positive response. Futures markets point to a positive open for Wall Street on Tuesday after all the bloodletting on Monday.
This article was edited by Sam Bourgi.
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