Thursday, October 8, 2020

Dow Adds 500+ Points as Investors Monitor Stimulus

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News shaping
the markets today

     

What’s happening: US stocks closed sharply higher on Wednesday, with the Dow Jones index recording gains of more than 500 points.

What happened: President Donald Trump has been back and forth a number of times with the much-awaited stimulus package to lift the US economy.

On Monday, Trump tweeted that the bill needed to be passed soon, only to announce late Tuesday his plans to halt talks on the fiscal stimulus with the Democrats until after the Presidential elections. US stock futures plummeted as investors were looking forward to the package announcement. Wall Street reversed its course yesterday on another contradictory tweet by the US President, offering support to the fiscal stimulus measures.

Why it matters: Markets have witnessed a chaotic week so far with mixed messages from Washington over the fiscal stimulus.

Just an hour before market close on Tuesday, Trump’s tweet blamed the Democrats for not negotiating in good faith and announced plans to pull the plug on additional stimulus until after the November election.

The Dow Jones index came under pressure late Tuesday on news of negotiations being halted and ended the day with a loss of around 375 points.

Just a few hours later, Trump contradicted his previous tweet and said he is ready to sign separate stimulus measures, supporting a $25 billion package for airlines and a PPP (Paycheck Protection Program) worth $135 billion for small businesses. The US President also said he was in favour of individual stimulus checks of $1,200.

Airline stocks moved higher on Wednesday, with JetBlue Airways climbing around 7% and American Airlines adding more than 4%.

Investor sentiment was also lifted by the Federal Reserve’s minutes from its September meeting, indicating that the economy was making a faster-than-projected recovery.

The Dow jumped 530.7 points to close at 28,303.46 on Wednesday. The S&P 500 added 1.7% to reach 3,419.45, while the Nasdaq 100 surged 1.9% to 11,364.60.

What to watch: Investors await the release of initial jobless claims data from the US. The number of people filing for jobless benefits is expected to decline to 820,000 in the latest week, from 837,000 in the week ending September 26.

Markets will continue to keep an eye on any progress in the US government’s stimulus package.

The Markets Today

     

The Canadian dollar will be in focus today, ahead of housing starts data from the country.

Context: The Canadian dollar climbed versus the greenback on Wednesday on prospects of the US government finally agreeing to a stimulus package.

Details: The Canadian dollar strengthened in the previous session following an improvement in investor sentiment after US President announced his support for standalone bills. While the loonie found supported, as the US is a large market for Canada, the greenback weakened on the news, as the injection of money into an economy lowers the value of its currency.

Investors digested news of Canada’s PMI declining to a four-month low of 54.3 in September, from August’s 67.8 reading, missing the consensus estimate of 64.5.

Crude oil, one of the major exports of Canada, also remained under pressure on Wednesday after the EIA reported a bigger-than-expected rise in US inventories last week. US crude futures lost 1.8% to close at $39.95 per barrel.

The Canadian dollar traded higher by 0.3% at $1.3263, or 75.40 US cents, recovering quickly from a decline earlier in the session to its lowest level since September 30 of $1.3340.

Canada’s government bond yields gained on Wednesday, with the 10-year government bond adding 5 basis points to reach 0.620%.

What to watch: Traders await the housing starts report from Canada. Housing starts, which surged 6.9% to 262,396 units in August, are expected to decline to 240,000 units in September.

Markets will also focus on the speech from Bank of Canada Governor Tiff Macklem later today. Canada is also scheduled to release its September jobs report on Friday.

Other Markets: European indices trading closed mostly lower on Wednesday, with the FTSE 100 and French 40 down by 0.06% and 0.27%, respectively. The DAX 30 bucked the trend and gained 0.17%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Mexico’s inflation rate and monetary policy meeting minutes, ECB’s monetary policy meeting accounts, Turkey’s gross foreign exchange reserves, Brazil's retail trade, Russia’s foreign exchange reserves as well as the US EIA’s natural gas stockpiles.