S&P 500 futures drop as Mnuchin pulls plug on Fed emergency lending programmes

• S&P 500 futures dropped 20 points to 3560 in the final minutes of futures trade, while US bonds rallied.
• Mnuchin asked the Fed to return any unused stimulus funds from some of its emergency lending programmes.

S&P 500 futures dumped shortly after the close of cash equity trade after US Treasury Secretary Steven Mnuchin asked the Fed to return any unused stimulus funds from some of its 13(3) facilities (emergency lending programmes) to the Treasury.

Mnuchin said the move would allow Congress to reappropriate approximately $455B remaining from the $2.2T Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law by US President Donald Trump on 27 March 2020.

The Fed immediately responded, saying that they would prefer it if the full suite of emergency facilities established during the pandemic were allowed to be continued in order to serve as a backstop for the “strained and vulnerable economy”.

S&P 50 futures fell from Thursday session highs around 3580 to the 3560 mark before futures trade was closed (futures markets reopen at 23:00GMT), with the move being immediately interpreted as a negative for the Fed’s ability to support the economy. Meanwhile, US bonds saw upside, not only due to demand for havens but also potentially given that the move means the US Treasury won’t have to issue quite as much debt in the future.

Traders will be keeping an eye on how the market reaction continues at the reopen of futures trade at 23:00GMT, and then how European participants digest the move when they begin to arrive from 06:00GMT on Friday.

FX markets do not seem as bothered, though minor downside has been seen in some of the more risk-sensitive currencies (AUD, NZD, CAD) in recent trade. Perhaps if any adverse reaction continues to extend during Friday’s Asia session, this could have more read across to FX (havens such as USD, CHF and JPY would likely outperform in this scenario).