18 February 2021

Dow Hits Another High on Stimulus Prospects

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News shaping
the markets today

     

What’s happening: US stocks closed mixed on Wednesday, with the Dow Jones index climbing to another all-time high.

What happened: Hopes of the Biden administration’s new fiscal stimulus package boosting the US economy propelled cyclical stocks higher on Wednesday.

Even amid this optimism, the Nasdaq 100 inched lower due to a general slump in technology stocks.

Why it matters: President Joe Biden is trying hard to get the Congress to approve his proposed $1.9 trillion covid-19 rescue bill in the coming weeks. The package includes Americans receiving stimulus cheques of $1,400.

Sectors that are expected to be boosted by a reopening and recovery of the US economy, including energy and consumer discretionary, recorded the strongest gains on Wednesday.

The S&P 500 banking industry group index also recorded gains, with the yield on 10-year Treasuries hitting a one-year high on Wednesday. The 30-year rate retreated slightly but remained above the 2% level. A high Treasury yield, which is essentially the interest rate offered by the US government, typically exerts pressure on the stock market, as it drives investments into Treasury bonds. However, it does support some stocks, like financials.

Economic data also supported investor sentiment, with retail sales growing 5.3% in January, surpassing estimates of 1.2% growth. The surge in consumer spending is likely to fuel inflation estimates. Moreover, producer prices rose 1.3% in January, notching the highest increase since the compilation of the index in December 2009.

Shares of cryptocurrency-related companies, including Riot Blockchain and Marathon Patent Group, continued to record sharp gains on Wednesday, as bitcoin briefly surged past the $52,000 mark.

Although the S&P 500 climbed after the release of minutes from the Federal Reserve meeting, the index still closed slightly lower on Wednesday. The Nasdaq 100 slipped 0.54% to settle at 13,699.71.

A sharp decline in fresh covid-19 cases and progress on the inoculation front reinforced hopes of a faster economic rebound this year. The Dow Jones index gained 0.29% to close at 31,613.02, notching another record high on Wednesday.

What to watch: Investors will focus on this week’s earnings results from travel-related companies, including Marriott International, TripAdvisor, and Norwegian Cruise Lines.

Markets will also focus on key economic reports from the US, including jobless claims, import prices, export prices, housing starts, building permits and the Philadelphia Fed manufacturing index. The number of Americans filing for jobless benefits is expected to decline to 765,000, from 793,000 in the week ended February 6. January’s export and import prices are expected to rise 0.7% and 1%, respectively. The Philadelphia Fed manufacturing index is projected to drop to 20 in February, from 26.5 in January.

The Markets Today

     

Crude oil will be in focus today, ahead of the EIA’s (Energy Information Administration) report on crude stockpiles.

Context: Oil prices traded higher on Thursday, with prices surging to their highest level in over a year.

Details: Tensions between Saudi Arabia and Houthis rebels had sent crude oil prices higher last week, while the rally on Wednesday was supported by production outages across the US due to a massive snowstorm in Texas.

A record decline of 40% in US oil output and several crude pipelines being forced to close due to freezing temperatures supported oil prices.

US crude inventories fell sharply by 5.8 million barrels last week, according to the American Petroleum Institute, following a decline of 3.5 million barrels in the earlier week.

Natural gas futures continued to climb, as the US coped with sub-zero temperatures. Natural gas futures had risen by more than 1% at 5am GMT today.

WTI (West Texas Intermediate) crude for March delivery rose 1% to $61.75 per barrel this morning. On Tuesday, crude prices had settled above the $60 level for the first time since January 2020. Meanwhile, April Brent crude rose around 1.3% to $65.16 per barrel this morning.

“[We] do not see WTI prices of $60 per barrel as being sustainable in the medium term. After all, at such prices U.S. oil production is likely to recover much more dynamically than expected and delay the reduction of surplus inventories,” Eugen Weinberg, commodity analyst at Commerzbank, wrote in a note.

What to watch: Markets await data on the EIA’s crude stockpiles report, which is expected to show a decline of 2.429 million barrels for the latest week, following a decline of 6.644 million barrels in the week ended February 5.

Rising covid-19 cases remain a top concern for investors, with total infections surpassing 27.8 million in the US.

Other Markets: European trading indices closed lower on Wednesday, with the FTSE 100, German DAX 30 and French 40 down by 0.56%, 1.1% and 0.36%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Turkey’s consumer confidence index, foreign exchange reserves and the central bank’s interest rate decision, Bank Indonesia’s interest rate decision, South Africa’s building permits, Eurozone’s consumer confidence indicator and the ECB’s monetary policy meeting accounts, Canada’s ADP employment and new housing price index as well as Russia's unemployment rate, GDP and retail sales.

 

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