Tuesday, June 16, 2020

US Markets Celebrate Fed’s Emergency Lending Plan

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News shaping
the markets today

     

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.

The Markets Today

     

Crude oil will be in focus today, after the commodity gave up previous losses to close higher on Monday.

Context: Oil index futures closed higher in the commodity market’s previous session, driven by a decline in global crude production. Crude posted losses initially in the session over fear of a downturn in energy demand due to a rise in new covid-19 cases.

Details: China announced plans to close its food market in Beijing after reporting a cluster of new covid-19 infections. The US also witnessed a rise in cases in several states, including California, Florida and Arizona, following reopening efforts.

BP issued a warning of the pandemic causing a lasting impact on the economy, which will hit oil demand. The oil giant also announced plans to write down around $17.5 billion of its assets.

Earlier this month, the OPEC (Organization of the Petroleum Exporting Countries) and its allies agreed to extend production cuts by one month till the end of July. Reports also emerged on Monday that Iraq was complying with the OPEC+ output cuts.

After falling as low as $34.36 per barrel earlier in the session, WTI (West Texas Intermediate) crude for July delivery climbed 2.4% to end at $37.12 per barrel on the NYMEX (New York Mercantile Exchange). WTI crude had posted a weekly loss of 8.3% on Friday, recording its first weekly decline in seven weeks.

Global benchmark Brent for August climbed 2.6% to settle at $39.72 per barrel, after trading as low as $37.24 previously in Monday’s session.

In other commodities, July gasoline gained 3.7% to $1.1657 a gallon, while July natural gas slipped 3.6% at $1.669 per million British thermal units.

What to watch: Crude oil is likely to remain under pressure on news of higher covid-19 cases in several parts of the world. WTI crude traded down 0.4% to $36.99 during the European session this morning.

Markets await the API (American Petroleum Institute) report on crude oil stockpiles in the US, scheduled for release later in the day. Crude oil stockpiles had increased by 8.4 million barrels in the week ended June 5.

Other Markets: European indices were trading higher at 8:30am GMT, with the FTSE 100, French 40 and Dax 30 index up by 2.5%, 2.2% and 2.5%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Canada’s foreign stock investment, New Zealand’s global dairy trade price index, China’s foreign direct investment as well as the US Redbook index.