What’s happening: US stocks shook off early weakness to close higher on Monday, following announcements of emergency lending by the Federal Reserve.
What happened: Wall Street breathed a sigh of relief after in late trading on Monday, after being under pressure during morning trading and last week due to fears of a second wave of coronavirus demolishing already struggling economies across the world. Market sentiment had also been hurt by the Federal Reserve’s projections of a 6.5% contraction in the US economy this year and the IMF’s chief warning of the global slowdown being worse than earlier anticipated.
US stock and indices trading made a sharp turnaround in yesterday’s session, when the Fed stepped up yet again to support businesses suffering due to the pandemic related lockdowns.
Why it matters: Markets have been edgy over the past few days with US indices trading recording their worst weekly performance since March, with various US states reporting a rise in covid-19 cases. While some speculated this rise to be due to increased testing, a rise in infections in other countries suggested that this may not be the case, especially with Beijing reporting a cluster of new covid-19 cases related to the largest wholesale food market in Asia.
Investors worried about the elevated cases resulting in the resurgence of restrictions and further pressure on an already battered economy. Soft economic releases from China did not help the cause either, signalling that the road to recovery may be a long one.
The pressure eased and US stocks rallied after the Fed announced the launch of its Main Street Lending Program and said it plans to buy individual corporate bonds to inject liquidity into the economy, expanding the scope of its SMCCF (Secondary Market Corporate Credit Facility).
“The SMCCF will purchase corporate bonds to create a corporate bond portfolio that is based on a broad, diversified market index of U.S. corporate bonds,” the Fed said in a statement.
Additionally, the Fed authorised a Primary Market Corporate Credit Facility, although it has not officially launched it yet.
Economic data released by the US yesterday also pointed towards some improvement in manufacturing activity. The New York Empire State manufacturing index jumped 48 points to a reading of -0.2 in June.
The Dow Jones index rose 157.62 points to 25,763.16 on Monday, after regaining more than 900 points on its session low. The S&P 500 inched up 0.8% to reach 3,066.59, while the Nasdaq 100 climbed 1.4% to settle at 9,726.02 in the previous session.
Shares of Zoom Video Communications spiked to a new record high on Monday, surging close to 9% on expectations of the pandemic related restrictions being extended. The videoconference provider’s stock has skyrocketed over 250% year to date.
Shares of ViacomCBS climbed around 9% on Monday, after the company’s CEO Bob Bakish said live sports will be back on TV this month.
In precious metals, gold trading for August slipped 0.6% to end at 1,727.20 an ounce on Monday, after recording a weekly rise of 3.2%.
What to watch: Investors await a basket of economic reports and the Fed Chairman’s testimony today. The reports scheduled for release later today include retail sales, industrial production, capacity utilisation, manufacturing production, NAHB housing market index and business inventories.
US retail sales, which plunged 16.4% in April, is expected to rise 8% in May. Analysts expect industrial production to increase 2.9% in May, versus an 11.2% decline in April. The NAHB housing market index is projected to surge to 45 in June, from a prior reading of 37. Business inventories are likely to decline 0.8% in April.
US stock index futures are trading higher in the European session and point towards Wall Street extending its gains today. Markets will also monitor the daily covid-19 cases, with infections in the US exceeding 2,114,020 with 116,120 deaths.