Futures rebound as fed launches new purchases

Jefferies Global Equity Strategist Sean Darby joins Yahoo Finance’s Alexis Christoforous and Brian Sozzi to discuss how the Asian markets are rebounding from the coronavirus outbreak.

Video Transcript

- All right. Welcome back to Yahoo Finance, where stock futures are rallying after the Fed took some major steps this morning in an emergency meeting to help with the markets. I'm joined now by Global Equity Strategist at Jefferies, Sean Darby, who is joining us on the phone from Hong Kong.

And Sean, thanks so much for being with us this morning. First, just your reaction to the steps the Fed took this morning.

SEAN DARBY: Well, its been accelerating all of its policy easing almost from nine days ago. So this is contingent on the fact that it needed to, one, get the dollar weaker, number two, get credit spreads narrower, and thirdly, to get control of the repo markets. And we think, by and large, the Fed is almost got all of those three in line now.

The only thing that's missing is getting the fiscal stimulus, the fiscal backdrop, to actually remove some of the solvency concerns around companies. So in one sense, the Fed has done a lot now. And all that's needed is that the fiscal side starts to get aligned with the monetary policy.

BRIAN SOZZI: Sean, Brian here. Good to talk with you. Frame this for us. Let's say we do get that first round of fiscal stimulus today. Lawmakers come together and finally work together and pass something. Is that the buying opportunity, in light of what the Fed has done today?

SEAN DARBY: It is. It is, in many ways, because not just equities but credit markets, municipal bonds, a whole range of asset classes have essentially become a cash-generative scheme over the last couple of weeks as everyone has been deliberately trying to raise dollars in the global economy. So it's not just equities that are being battered by this sort of risk aversion. It's been other asset classes as well.

So we would expect equities to rally quite substantially once the market is fully convinced that the solvency and the credit issues have actually reached a peak. And in my view, once that fiscal package of nearly $2 trillion is in place, that ought to be the backstop for equity markets that they've been seeking.

- You know, Sean, the swap lines that the Fed initiated last week didn't do much to shore up investor confidence. Do you think what we're seeing today is enough to get investors confident about coming back into this market-- maybe slowly, but getting back in?

SEAN DARBY: That's a really good question, because certainly in trading today, the reaction on Asian and emerging market currencies has actually been quite poor. We saw quite substantial sell-offs again in emerging market currencies and even in some of the developed market currencies as well.

I think that we've got two battles still left that the Fed really can't control. One is quarter end. So a lot of people are de-risking and deleveraging coming into quarter end. And secondly, I think there's still a huge amount of hoarding going on, principally by companies and banks, mainly to make themselves sort of reassured that they've got this sort of balance sheet to withstand a longer period of an economic slowdown.

But as for my point of view-- that we are almost by and largely there in terms of the Fed's policy. Just need that fiscal side to come aligned.

BRIAN SOZZI: Sean, you're over there in Hong Kong. Very curious on what you're seeing on the ground from an economic standpoint. I think a lot of US investors are looking to Hong Kong and China, where the cases may have peaked, as to what could happen in the US in terms of a recovery later this year.

SEAN DARBY: Yeah. That's a very good question. So on the number of new cases, certainly domestically, those cases have actually fallen in China. Unfortunately, we've actually absorbed some of the people traveling into Hong Kong and China, which have brought new infection rates back up again.

So we sort of had a bit of a double dip, really. So I think that's one of the things that you've got to be aware of in the United States and Europe, is that the initial wave of beating the COVID-19 appears to have been this sort of big success factor. But then, you get this sort of second wave of-- not reinfections-- but people becoming reinfected purely because other people are traveling from other centers of the world.

In terms of the economy in China, 90% of the manufacturing sector's workers are back in place now. There's been a reasonable rate of production increases. To be fair, the January, February data for China was much weaker than expected. But again, you've got to put that in the context of a Chinese New Year.

By and largely, the policy makers in China ought to be reasonably comfortable that the worst is over for the economy. And they're really now wanting or wishing that the global economy also sees that peak in their COVID-19 cases to sort of sound the all-clear.

- All right. Sean Darby of Jefferies. Stay safe. And again, we thank you for joining us on the phone from Hong Kong this morning.