Markets are Betting the Dow Crash Will Lead the White House to Reverse Its Fiscal Response To the Coronavirus

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Markets are betting the Dow crash will lead the White House to reverse its fiscal response to the coronavirus

March 10, 2020

U.S. President Donald Trump arrives to speak in the briefing room of the White House in Washington, on 9 March 2020, about the coronavirus outbreak.

After all, White House officials have previously said they wanted a limited response, with National Economic Council Director Larry Kudlow at one point calling for a “micro approach.”

“The fiscal response has been [a] disappointment,” said Neil Dutta, head of economics at Renaissance Macro Research. “For a president that laments about the rates the U.S. pays, it is surprising to see how little the administration is willing to do with them now they’ve arrived,” he said in a note to clients.

Perhaps that’s changing. At a news conference after stock markets had shut on Monday, President Trump said discussions will take place with Senate Republicans on a possible payroll tax cut, relief to hourly workers, loans to small businesses and help for the travel industry.

A report from CNBC tempered enthusiasm, however, as it quoted unnamed officials saying a plan “is not there right now.”

Dutta said there’s good news that could limit the fallout if there is a recession, which he still doesn’t think will happen. The U.S. economy picked up steam over the winter, and the drop in mortgage interest rates is providing for a refinancing boom at an opportune time. Lower gasoline prices also will provide a tailwind to consumers, and China is now beginning to resume activity, Dutta said.

On the coronavirus front, there are 114,567 confirmed cases globally which have led to 4,027 deaths, according to the Johns Hopkins tracker of government reports. Italy is now number-two behind China with 9,172 cases and 463 fatalities. South Korea reported fewer than 150 new cases for the first time in two weeks.

Saudi Aramco said on Tuesday it will boost its supply of crude oil to 12.3 million barrels per day in April in the latest escalation of Saudi Arabia’s price war.

A number of U.S. airlines including Delta US:DAL and American Airlines US:AAL announced capacity reductions.

The House Financial Services committee is due to hold a hearing into Wells Fargo’s US:WFC practices, as two board members resigned this week. And the Consumer Financial Protection Bureau has filed a lawsuit against Fifth Third Bank US:FITB, alleging the bank’s employees opened fake accounts as Wells Fargo had done. The Cincinnati bank is fighting the lawsuit but acknowledged it opened 1,100 accounts fraudulently and has fully compensated for the damage.

The markets

Monday was so yesterday. U.S. stock futures US:ES00 US:YM00 surged on Tuesday, and crude-oil futures US:CL bounced up about 9%.

Bonds fell, with the yield on the 10-year Treasury BX:TMUBMUSD10Y surging 16 basis points. Yields move in the opposite direction to prices. Gold futures US:GC00 fell $9 an ounce.