After futures soared limit up, rising 5%, or over 180 points, from Monday's close after Trump previewed that a "major" stimulus plan is in the works, including a payroll tax cut and other stimulus measures to mitigate economic damage from the coronavirus spread, moments ago the rally reversed after CNBC reported that the White House is not ready to roll out specific economic proposals in its response to the widening impact of the coronavirus outbreak.
In addition to the potential payroll tax cut, which faces skepticism from Senate Republicans, Trump also said that the administration would work with travel industry players, such as airlines and cruise lines, as travel restrictions and fears stemming from the outbreak take a toll on them. American Airlines on Tuesday, for instance, slashed international and domestic flights as demand craters.
Wage relief for hourly workers is also under discussion, but it would require big federal spending and there are no details about how such a policy would work, an official said.
According to CNBC, inside the administration, some officials were stunned by Trump’s claim Monday that he would hold a press conference Tuesday to announce an economic plan. “That was news to everyone on the inside,” one official said. The actual details of any plan remain up in the air. “It’s not there right now,” an official said. “A lot of details need to be worked out.”
So is this another half-baked plan that was announced before any actual thought went into it? It looks like it: as CNBC's Eamon Javers tweets, "a lot will depend on Mnuchin and Kudlow’s lunch with Senate Republicans on the Hill today, where I am told they will float several ideas and see what is politically possible."
A lot will depend on Mnuchin and Kudlow’s lunch with Senate Republicans on the Hill today, where I am told they will float several ideas and see what is politically possible.— Eamon Javers (@EamonJavers) March 10, 2020
And while Javers notes that it's possible that the White House will have details by the 1730EDT Task force presser, "anything involving spending or taxes will require congressional action, so will not be immediate" while there's also the matter that Democrats have already outlined and shared highlights from their plan.
This means that the reason for the market's lack of excitement all along, and why Trump's announcement on Monday seemed like the president has all the details ironed out. It now turns out he never did, and the overnight euphoria was largely for nothing.
Of course, with stocks soaring almost 5%, it would be very unpleasant to pull the trapdoor and reverse the entire rally as clarity finally emerged, although we did see a modest reversal in the torrid rally:
- E-Minis fell from 2862 to 2836
- Treasury futs jumped from 137.19 to 138.02
- USDJPY fell from 104.68 to 104.18
- Gold rose from 1663/oz to 1667/oz before paring