Top 5 Things to Know in the Market on Friday, March 20th

By Geoffrey Smith

Investing.com -- California goes into lockdown and Germany may follow on Sunday. Senate Republicans introduce a new stimulus bill that includes helicopter money for families and bailouts for airlines and other businesses. The dollar goes into retreat as central bank easing gains traction, stock markets bounce ahead of the expiry of March options contracts and oil takes flight after a report suggesting the U.S. may reintroduce production quotas for the first time in nearly 50 years. Here's what you need to know in financial markets on Friday, March 20th.

1. California in lockdown as virus spreads; Germany may follow on Sunday

California ordered its population of 40 million to stay home to stop the spread of the coronavirus, the latest hammer blow to the global economy from a virus that is still spreading fast outside of China.

In Germany, expectations of a full lockdown are also rising as Chancellor Angela Merkel scheduled a call with state governors for Sunday to assess the effectiveness of the less draconian measures that have so far been taken.

Worldwide, the death toll from the virus has now topped 10,000, while the number of confirmed cases has hit 245,000, according to data compiled by Johns Hopkins University. The U.S. tally of confirmed cases has risen to 14,250. California Governor Gavin Newsom estimated that over half of the state’s population – some 25 million people - will be infected over an eight-week period.

1. Republicans stimulus bill: helicopter money and part-nationalization

Senate Republicans introduced a stimulus package worth over $1 trillion to buttress Congress’s more modest first two attempts to support the economy through the coronavirus outbreak.

The plan makes so-called ‘helicopter money’ a reality, calling for adults to receive up to $1,200 per month, with an extra $500 for every child. Payments will scaled down for higher earners.

The bill also includes $50 billion in loan guarantees for passenger air carriers, $8 billion for cargo air carriers and $150 billion for other large businesses, and authorizes the federal government to take equity stakes.

1. Dollar retreats as squeeze eases

The extreme dollar rally went into reverse, as a massive expansion of central bank liquidity finally started to bring the supply of dollars back into line with demand.

The Federal Reserve’s action to backstop the commercial paper and money market funds this week has underpinned domestic U.S. markets, while the announcement of nine more dollar swap facilities with foreign banks will allow dollars to reach more corners of global markets more quickly, reducing near-term default risks.

Other central bank actions, such as the dramatic expansion of quantitative easing programs at the European Central Bank and Bank of England in the last 36 hours, have also supported European markets.

By 6:55 AM ET (1055 GMT), the dollar index that tracks the greenback against a basket of developed market currencies was down 1.0% at 102.54. It’s still up 3.9% on the week, however.

1. Stocks rally ahead of futures and options expiry

The easing of stress in funding markets has allowed global stock markets to bounce sharply. U.S. stock markets are set to open higher, with the Dow Jones 30 futures indicating a gain of 719 points or 3.6%. The S&P 500 futures contract is up 3.2% and the Nasdaq 100 futures contract up 4.4%.

In Europe, the Stoxx 600 benchmark rebounded sharply to be up 3.6%, while in Asia, the Chinese CSI 300 closed up 1.3%.

Market movements are being amplified by the fact that most of the March contracts in the world’s major futures and options products expire Friday – the routing ‘quadruple witching’ effect.

1. Oil rockets on report of U.S. output regulation

Crude oil futures leaped on the back of a report by The Wall Street Journal alleging that the U.S. is imposing production quotas on domestic companies. By 6:55 AM ET, U.S. crude was up 5.1% at $27.22, while Brent was up 4.5% at $29.46 a barrel.

The U.S. has a history of regulating production through the Texas Railroad Commission back to before World War 2, but abandoned the practice nearly 50 years ago.

The WSJ reported that the U.S. may lean on Saudi Arabia and Russia to rein in their output, with the threat of sanctions directed at the latter in particular.

Bloomberg reported that President Vladimir Putin sees the price war initiated by Saudi Arabia as ‘blackmail’ and is refusing to give in. Russia’s budget is designed to balance at a price of $40 a barrel, while Saudi Arabia and most OPEC producers need a much higher price to meet their budget needs.

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