Investors will be watching US stocks today, with all three major indices delivering major recoveries on Monday. The indices had posted strong selloffs in the previous week.
Context: US stocks closed higher on Monday, with the Dow recording its highest single-day percentage rise in around eleven years, driven by hopes of policymakers easing monetary policy to combat the coronavirus impact on the global economy. However, the central banks of some major economies don’t have the elbowroom needed for this.
Details: After closing out the worst week since the 2008 financial crisis, all three major indices delivered their biggest one-day point gains on Monday. Investor sentiment was not dampened even by the disappointing reports from the US and other countries, including downbeat readings for US ISM manufacturing and Chinese PMI. Investors are expecting the Federal Reserve and other central banks to cut interest rates to support global equities. Goldman Sachs also expects the Fed to lower rates even before the scheduled March meeting.
Despite the hopes, the European Central Bank and the Bank of Japan have no leeway to lower interest rates, which are already in negative territory. The Reserve Bank of Australia lowered its cash rate by 25 basis points to 0.5%, setting a new record low. The lower interest rates may be a feeble attempt at boosting economic activity, while very low rates can lead to inflation, thereby reducing purchasing power and threatening the sustainability of economic growth.
The Dow, which nosedived 12.4% last week, climbed 1,293.96 points to close at 26,703.32 on Monday. Meanwhile, the S&P 500 gained 4.6% and the Nasdaq added 4.5%.
China is continuing to report a decline in daily numbers of confirmed coronavirus cases, with the country reporting 125 new confirmed cases on March 2, down from 202 on March 1. However, cases outside China continued to accelerate, with South Korea confirming 600 new coronavirus cases and 3 new deaths. Health officials in Washington announced 4 additional deaths from COVID-19.
In corporate news, Forty Seven’s shares spiked around 62% after Gilead Sciences announced plans to buy the company. Shares of Mobile Mini also gained over 5% after the company agreed to be acquired by WillScot Corp.
On the economic data front, the ISM’s manufacturing index tumbled to 50.1 in February, versus a prior reading of 50.9 in the previous month.
In other news, yield on the US 10-year Treasury slipped 4.2 basis points to 1.085%. The US dollar index, which measures the greenback’s performance against a basket of currencies, slipped 0.8%.
Why it matters: The rally in stocks, driven by expectations of a rate cut, is likely to accelerate today. US stock futures are also pointing towards a higher open this morning. The economic calendar will be light today, but investors will still be awaiting reports on economic optimism and current business conditions.
What to watch: The market will look at the major indices, with stock futures pointing towards a higher start. The Economic Optimism Index, which remained unchanged at 59.80 in February, is expected to slide to 58.1 in March.
Other Markets: Most European indices closed higher on Monday, with the FTSE 100 and CAC 40 up 1.13% and 0.44%, respectively. However, the German 30 was down 0.27%.