25 February 2021

US Stocks Stage Sharp Rebound, Dow Adds 400 Points

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News shaping
the markets today

     

What’s happening: US stocks closed sharply higher on Wednesday, with the Dow Jones index spiking more than 400 points.

What happened: Technology shares tumbled in early trading on Wednesday, with the 10-year Treasury yield hitting its strongest level since February 2020. The higher yield encouraged investors to turn their focus to economic-recovery sensitive stocks and away from growth stocks.

Despite the initial pressure, Wall Street staged a strong comeback following comments from Federal Reserve Chairman Jerome Powell.

Why it matters: After opening in the negative zone on Wednesday, US stocks delivered a strong rebound after Fed chief testified for a second day before the House Financial Services Committee.

Powell reiterated plans to keep interest rates unchanged for the foreseeable future, while expressing the commitment to continue with asset purchase programs. The Fed chief also downplayed the inflation threat. Although inflation may remain volatile with the reopening of the economy, there is unlikely to be a sudden increase. “I really do not expect we’ll be in a situation where inflation rises to troublesome levels,” Powell said.

Remarks from the Fed Chairman eased market concerns over a change in monetary policy by the central bank following a potential rise in inflation. Treasury yields also came off their highs following Powell’s comments.

“There was relief in the market that yields and inflation aren’t going to be as runaway as anticipated,” said Shawn Snyder, investment strategy head at Citi US Wealth Management.

Sentiment was also lifted by Johnson & Johnson’s single-shot vaccine receiving a favourable FDA review ahead of the Friday’s advisory committee meeting.

The Dow Jones index closed higher by 424.51 points at 31,961.86, after shedding around 110 points earlier in the session. The spike was driven by a sharp rally in energy, financial and industrial stocks.

The S&P 500 added 1.14% to settle at 3,925.43 on Wednesday, while the tech-heavy Nasdaq 100 reversed its sharp decline and closed 0.81% higher at 13,302.19.

What to watch: Markets await a basket of economic reports from the US, including durable goods orders, GDP growth, initial jobless claims, pending home sales and Kansas City Fed's manufacturing production index. New orders for manufactured durable goods are expected to increase 1.1% in January, while the US economy is projected to expand by 4.2% in the fourth quarter versus a record 33.4% growth in the previous quarter. The number of Americans filing for jobless benefits is expected to decline to 838,000, from 861,000 in the week ended February 13.

The Markets Today

     

The Canadian dollar will be in focus today, after hitting its strongest level in three years versus the greenback.

Context: The Canadian dollar traded higher versus its US counterpart in yesterday’s session, following a sharp rise in oil prices and comments from Fed Chair Jerome Powell.

Details: Prices for crude oil, one of Canada’s major exports, has surged more than 30% year to date, sending the loonie higher by around 1.7%.

US crude oil futures jumped 2.5% to settle at $63.22 per barrel on Wednesday, following the US government report showing a decline in crude output of over 1 million barrels per day last week amid the Texas deep freeze.

"Unless oil corrects lower, we should see further CAD strength as it slowly catches up to the
oil move that has already happened," said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.

Bank of Canada governor Tiff Macklem expressed optimism around the country’s growth prospects, saying that the economy could deliver a solid recovery this year with a ramp-up in covid-19 inoculations.

Meanwhile, the Fed chief reassured markets by reiterating the central bank’s stance to not change the monetary policy until the economy shows clear signs of improvement.

“Powell made it very clear that the improvement in the economic outlook thus far will not instigate the Fed to tighten monetary policy,” said National Australia Bank foreign exchange strategist Rodrigo Cattrill.

Canadian government bond yields traded higher on Wednesday. The 10-year yield hit its strongest level since February 2020 earlier in the session, before pulling back slightly.

The CAD/USD forex pair jumped to its highest intraday level since February 2018, before settling higher at 1.2514.

What to watch: Investors await data on average weekly earnings from Canada. Average weekly earnings of non-farm payroll employees rose 6.6% year-over-year to C$1,110 in November, following a revised 5.6% surge in the earlier month.

Rising covid-19 cases remain a top concern for investors, with total global infections exceeding 112.5 million.

Other Markets: European trading indices closed higher on Wednesday, with the FTSE 100, German DAX 30 index and French 40 up by 0.50%, 0.80% and 0.31%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Turkey’s economic optimism index, foreign exchange reserves and MPC meeting summary, France’s consumer confidence, Spain’s producer prices and industrial confidence indicator, Eurozone’s loans to households, loans to private sector, money supply M3, economic sentiment indicator, consumer confidence indicator, consumer confidence price trends, industry confidence indicator and services confidence indicator, Italy's manufacturing confidence index and consumer confidence index, South Africa’s producer prices, Mexico’s unemployment rate, GDP growth rate, current account balance, index of economic activity and Mexico's central bank monetary policy meeting minutes, Brazil’s loan growth, Argentina’s consumer confidence and balance of trade as well as the US EIA’s natural gas.

 

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