The Wednesday Market Minute
- Global stocks mixed as markets react to contradictory statements on stimulus from President Donald Trump.
- Hours after ordering White House officials to stop negotiating with Democrats, Trump suggested he would sign a ‘stand alone’ bill to support airlines and small businesses.
- The U.S. dollar edges higher amid the stimulus uncertainty, made more complicated by the President’s coronavirus diagnosis, while benchmark 10-year Treasury yields hold at 0.764%.
- Oil prices eases as the Energy Department trims near-term demand forecasts and Hurricane Delta slows to a category 3 storm as it heads towards the crude production areas of the Louisiana coast.
- U.S. equity futures suggest a firmer open on Wall Street, with a 190 point gain priced for the Dow Jones Industrial Average.
U.S. equity futures powered ahead Wednesday, while the dollar inched higher against its global peers, as markets reacted to a U-turn on stimulus talks from President Donald Trump that could signal a breakthrough in talks from lawmakers in Washington.
Just hours after ordering his White House staff — many of whom remain in self-isolation following the his coronavirus infection last week — to cease negotiating with Democratic lawmakers to try and bridge a $600 billion gap between rival stimulus bills, Trump Tweeted his willingness to sign a ‘stand alone’ agreement that would provide paycheck protection to small businesses and $25 billion in support to U.S. airlines.
While a smaller, more targeted bill is something House Speaker Nancy Pelosi has advocated for in the past, it’s difficult to tell at this stage in the election campaign, with just four weeks to go before the polls open on November 3, whether she would hand the President a tactical victory when he trails rival Joe Biden in most national polls.
Federal Reserve Chairman Jerome Powell, however, cautioned yesterday that while the ongoing recovery is ‘strong’, it is also ‘incomplete’, and said that it will only get stronger and move faster if “monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods.”
Still, U.S. equity futures looks set to claw back at least some of the losses triggered by Trump’s Tuesday afternoon Tweet, which ripped 580 points from the Dow Jones Industrial Average over the final hours of trading.
Futures contracts tied to the Dow suggest a 190 point opening bell gain, while those linked to the S&P 500, which ended Tuesday with a 47.6 point loss, are priced for a 16 point advance.
Equity market volatility, however, was also on the rise, with the VIX index trading 5.5% to the upside at 29.51 points following last night’s volley of Tweets from the President.
The U.S. dollar index was also higher, at 93.475, although that is not always good news for stocks, as the measure of the greenback against a basket of global currency peers typically moves in the opposite direction of equity futures.
The dollar’s gain also typically influences oil prices, which traded lower Wednesday as Hurricane Delta — the 10th named storm to hit the United States this year — eased on its approach to the Louisiana coast.
The Energy Department’s near-term demand forecasts were also pared lower yesterday as questions over the fate of fiscal stimulus, as well as global trade, continue to weigh on commodity prices.
WTI contracts for November delivery, the new U.S. benchmark, traded 84 cents lower from their Tuesday close in New York to change hands at $39.83 per barrel while Brent contracts for December, the global benchmark, were seen 76 cents lower at $41.87 per barrel.
In Europe, stocks were little-changed in the opening hours of trading, as a weaker-than-expected reading for industrial output in Germany, the region’s largest economy, offset some solid corporate earnings and near-term stimulus hopes.
The Stoxx 600 was marked 0.1% lower in Frankfurt, with the DAX falling 0.16%, while Britain’s FTSE 100 slipped 0.08% to the downside in London.
Stocks in Asia were mixed, with a modest gain for the MSCI ex-Japan benchmark, which is still being affected by a week of celebrations in China, and a modest 0.05% decline for the Nikkei 225 in Tokyo, which was pushed lower thanks in part to a firmer yen.