What’s happening: US stocks, which are considered a barometer of the economy’s health, delivered a rollercoaster ride last week. Although the US stock market ended Friday’s trading in positive territory, concerns remain around the coronavirus pandemic sending the world’s largest economy into a recession.
What happened: US stocks surged on Friday amid continued volatility. The sharp rebound in US indices came after the stocks suffered their biggest one-day decline since the 1987 market crash. US stocks also registered their strongest daily gains since 2008 on Friday, after President Donald Trump’s emergency announcement released access to $50 billion to help stop coronavirus from spreading.
In a surprise move, the Federal Reserve announced aggressive measures on Sunday in a bid to save the US economy from a coronavirus fallout.
Why it matters: President Trump announced plans to increase testing facilities and expand the ability of hospitals to provide treatments for coronavirus. Roche received clearance from the FDA for the emergency use of its coronavirus diagnostic tests. The agency announced the approval of the test kits within a day of receiving the application request. The automated test is projected to significantly increase the testing capability in the US.
On Friday, Treasury Secretary Steven Terner Mnuchin also disclosed that the White House and Congress were close to finalizing a stimulus deal. The Bank of Canada cut its benchmark rates by 50 basis points to 0.75%.
The Dow, which had plummeted over 2,300 points on Thursday, surged 1,985 points to close at 23,186 on Friday. The S&P 500 index gained 9.3%, while the Nasdaq 100 spiked 9.4%.
Sunday surprise: In an emergency move on Sunday, the Federal Reserve announced a massive 100 basis point reduction to its benchmark interest rate, bringing it down to zero. The Fed also launched a new round of quantitative easing (QE) worth $700 billion. The QE proposal allows in the government to make asset purchases in the Treasury and mortgage-backed securities, to shield the economy from the effects of the virus.
The new fed funds rate was cut from a range of 1% to 1.25% to a target of 0% to 0.25%. The Fed also slashed the rate of emergency lending to banks by 125 basis points to 0.25% and increased the term of loans to 90 days.
Despite these moves, US stock futures plummeted immediately after the opening bell on Sunday night and trading had to be halted.
What to watch: Market volatility is likely to continue, as investors look for signs of progress with the recently announced QE plan and news of the coronavirus spreading.
COVID-19, which has been declared as a pandemic by WHO, has affected over 169,000 people worldwide and claimed 6,500 lives. US has reported around 3,700 cases so far, with 69 deaths. While Italy is reporting a rise in daily cases, the cases in China have been declining.
Safe haven assets, like gold and oil, have also been on a downward momentum. Oil futures recorded a whopping 23% decline last week, while gold futures were down 9%.
US stock futures are pointing towards a lower open today. Moreover, the economic calendar for the day is light, with the New York Empire State manufacturing index due for release later today. The index, which spiked to 12.9 in February, is expected to fall to a reading of 4.4 in March.