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Dow Jones, S&P 500, Nasdaq futures plummet despite coronavirus stimulus

US stock futures triggered a level one circuit breaker on Monday after the US central bank announced a 100 bps rate cut and US$700 billion quantitative easing programme.

US stock futures reversed the market correction made last Friday 13 March, triggering circuit breakers to hit a level one 5% limit down at 7.30am on Monday 16 March (SGT).

Dow Jones 30 futures tumbled 5.4% shortly after trading started, S&P 500 futures lost 5.3%, while Nasdaq 100 futures slipped 5.5%.

US central bank slashes interest rate, launches US$700bn stimulus

These price movements happened a couple of hours after the US Federal Reserve revealed in an emergency press conference on Sunday 15 March that it would be implementing several fiscal measures to combat the economic fallout caused by the coronavirus pandemic.

These include slashing interest rates by 100 basis points to a range of 0% to 0.25%, the lowest level since 2015. This cut follows a half percentage point rate reduction already rolled out on 03 March. The previous target range was 1% to 1.25%.

In a bid to control longer-term debts and boost a slumping housing market, the US central bank also announced a US$700 billion quantitative easing programme centred on buying back and holding more assets.

The stimulus package will be divided into the purchase of US$500 billion of US treasuries and US$200 billion of mortgage-backed government securities.

US Fed chair Jerome Powell said the purchases will start on Monday with a US$40 billion instalment.

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On the interest rate cut – the first made outside of a scheduled meeting since the 2008 global financial crisis, Powell said: ‘We will maintain the rate at this level until we’re confident that the economy has weathered recent events and is on track to achieve our maximum employment and price stability goals.’

The US Fed also said that it would be working with other central banks – namely the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank – to slash cash reserve requirements for thousands of commercial banks to 0, in order to boost their liquidity facilities.

US coronavirus fiscal measures viewed as ‘inadequate’

US President Donald Trump said he is ‘very happy’ with the measures, and that ‘that people in the market should be very thrilled’.

Things appear contrarian at present, with US futures all down sharply post-announcement. Although overnight proceedings on the futures market rarely translate into the actual day stock trading, going ‘limit down’ after a slew of economic tools were just introduced hardly seems like a positive reaction.

According to IG Asia market analyst Pan Jingyi, the Asian market’s reaction this morning indicates that the measures are being viewed as ‘inadequate’.

She wrote in a client note on Monday morning that the Fed’s emergency move had in fact triggered ‘fresh concerns’ on the back of the ‘fear that the central banks’ support may not be enough to cushion the impact', which 'had the risk-off mood raging across the market into the start of the week’.

The US$700 billion fiscal stimulus, while sizeable, is below the US$900 billion amount that was first reported last week. The chatter in the markets over the weekend, Pan noted, had been around ‘more substantial support’ on the fiscal front.

‘Although expectation had long been for at least a 75-basis point cut according to market watchers, the urgency displayed with this second emergency cut had perhaps made it different, spelling of the worries on hand,’ she added.

S&P 500 futures halted trading at 2,555.50 (-128.40), Dow Jones 30 futures at 21,794.0 (-1045.0), and Nasdaq 100 Contract at 7,540.50 (-360.25).

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