The Wednesday Market Minute
- Global stocks nudge higher amid ongoing stimulus bets, but U.S. rally may pause ahead of Powell speech Thursday.
- Fed Chair poised to unveil a new inflation strategy that could pave the way for more monetary stimulus as key portions of the economy show signs of persistent weakness.
- Benchmark 10-year Treasury bond yields, as well as the dollar, rise in anticipation, while gold prices ease.
- European stocks bump higher after Germany adds €10 billion in coronavirus relief as regional infections rise even amid travel restrictions.
- Hurricane Laura bears down on the Gulf of Mexico, threatening parts of Texas and Louisiana with 105 mile an hour winds and ‘life threatening’ storm surges.
- U.S. equity futures suggest a modestly softer open on Wall Street ahead of MBA mortgage data at 7:00 am Eastern time and durable goods orders for July at 9:30 Eastern time.
U.S. equity futures were mixed Wednesday, while Treasury bond yields ticked higher and gold prices eased, as investors hit pause on this week’s mini-rally ahead of a key Fed speech on Thursday and concerns over the fate of government-lead stimulus heading into the final months of the year.
With U.S. stocks holding near all-time highs, thanks in part to the trillions begin spent on the economy by both Congress and the Federal Reserve, Chairman Jerome Powell’s speech tomorrow to the Kansas City Fed’s annual retreat in Jackson Hole, Wyoming has taken on a new level of significance for financial markets.
Powell, who will address the conference via video, is expected to outline a newer, more flexible approach to inflation targeting, a move that could include allowing consumer prices to run hotter, for longer, in order to compensate for years of undershooting the Fed’s preferred 2% target.
Treasury bond yields have been rising — albeit modestly — in advance of the speech, as investors factor in the implications of both faster inflation and fresh monetary stimulus, which could follow Powell’s speech next month if Congress fails to agree a coronavirus stimulus package in the weeks before the November election.
Corporate America is already demanding at least some form of extended support, with American Airlines AAL warning yesterday that without an extension to payroll relief, which expires on October, it will lay off at least 19,000 workers.
U.S. consumer confidence, meanwhile, slumped to the lowest levels since 2014 this month as high levels of unemployment, the expiration of the government’s $600 per week in emergency benefits and an uncertain autumn in terms of the pandemic’s resurgence keeps wallets closed and finances tight.
All that said, U.S. stocks are still riding a three-day winning streak, and trading at the highest levels in history, even with a potential pullback today ahead of durable goods orders at 8:30 am Eastern time.
Futures contracts tied to the Dow Jones Industrial Average, which has jumped 6.9% so far this month, are priced for a modest 45 point pullback while those linked to the S&P 500, which closed at a record high 3,443.62 points, are indicating a 2 point bump for the broadest benchmark of U.S. equities.
Benchmark 10-year Treasury bond yields drifted to 0.706% in overnight trading, while the U.S. dollar index bumped 0.05% higher to 93.072 and gold slipped 0.36% to $1,921.59 per ounce.
The firmer U.S. dollar held down gains for global oil prices, even as U.S. drillers pulled workers from more than 300 platforms around the Gulf of Mexico region in advance of Hurricane Laura, which is expected to make landfall early Thursday with wind-speeds of up to 105 miles per hour.
WTI contracts for October delivery, the new U.S. benchmark, traded 5 cents higher from their Tuesday close in New York and were changing hands at $43.40 per barrel in early European dealing while Brent contracts for October, the global benchmark, were seen 12 cents higher at $45.98 per barrel.
Overnight in Europe, Germany’s decision to add a further €10 billion in coronavirus stimulus to the region’s largest economy — on top of the €130 billion already pledged — boosted both the DAX performance index and the broader Stoxx 600, which gained 0.27% in the opening hours of trading.
Asia stocks were also modestly higher, and close to their two-year peak, following Monday’s confirmation of the U.S.-China trade deal and what appears to be a temporary thawing of political tensions between Washington and Beijing.
The region-wide MSCI ex-Japan benchmark was last seen 0.09% higher on the session thanks to gains in Hong Kong, Taiwan and South Korea, while Japan’s Nikkei 225 ended the day just 0.03% lower at 23,290.86 points.